Friday, May 11, 2012
Keith Good Farm Policy: USDA Projections Cast Cloud Over Corn Market
By Keith Good
Agricultural Economy (WASDE Report)
Owen Fletcher and Bill Tomson reported yesterday at The Wall Street Journal Online that, “Corn prices fell 2.5% after the U.S. government raised its forecast for near-term supplies of the grain and projected a record harvest this autumn.
“The projections by the U.S. Department of Agriculture cast a cloud over a corn market that has been buoyed in recent weeks by worries about tight supplies. The forecasts not only discredited some of those concerns, but also reaffirmed that an infusion of newly harvested supplies later this year could be more than enough to replenish stockpiles.”
The Journal article noted that, “U.S. corn production is expected to increase this year to a record 14.79 billion bushels, up from 12.36 billion bushels last year, as a fast start to the planting season could boost crop yields, the government said. Corn yields may reach a record 166 bushels an acre, the USDA said. The government’s projected corn harvest would shatter the old record of 13.092 billion bushels set in 2009.”
Reuters writer Charles Abbott reported yesterday that, “USDA had less bountiful outlooks for other supplies, with domestic soybean inventories seen falling to 145 million bushels for the 2012/13 year from 210 million this year, with a stocks-to-use ratio ‘at a historically low 4.4 percent.’”
The article added that, “The report threatens to extend a cycle of volatile prices, with a shortage of one crop in one year giving way to a shortage of another in the next. Food prices spiked in 2008 and have remained high and volatile since then because of the razor-thin stocks and huge demand globally, especially from a hungry China.”
Emiko Terazono reported yesterday at The Financial Times Online that, “The jump in inventories is likely to weigh on prices for newly harvested corn. The USDA has forecast average prices paid to farmers will fall to a range of $4.20-$5.00 per bushel in 2012-13, down from a record $5.95-$6.25 per bushel this season.
“The record US production comes as the USDA anticipated record Chinese corn imports due to the higher use of the grain to fatten livestock, including pigs and poultry. The USDA predicted Chinese imports for the 2012-13 crop year at 7m tonnes, and revised its forecast higher for the current season to 5m. The figures are higher than the previous peak of 4.3m set during the drought of 1994-95.”
A breakdown of yesterday’s USDA report is available at the farmdoc daily blog- “As Usual, USDA Reports Contain Some Surprises,” by University of Illinois Agricultural Economist Darrel Good.
Also yesterday, Secretary of Agriculture Tom Vilsack spoke about the agricultural economy in a brief Bloomberg interview- video replay.
Farm Bill Issues
DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “The crop insurance industry could benefit from ‘common sense structural changes,’ according to a pair of senators, who cite a recent government study in calling on the Senate Agriculture Committee to further investigate reducing premium subsidies to farmers.
“In a bi-partisan letter, Sens. Tom Coburn, R-Okla., and Dick Durbin, D-Ill., wrote earlier this week to Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., and ranking member Pat Roberts, R-Kan., asking them examine ways to find taxpayer savings in crop insurance. Coburn and Durbin cited a Government Accountability Office report last month requested by Coburn that highlighted the growing costs of the crop insurance program.”
Mr. Clayton pointed out that, “In the 2008 farm bill, lawmakers chopped $3 billion from the industry’s projected growth over 10 years and also created a timing shift that will delay up to $3 billion in payments. A new contract negotiated between the industry and USDA in 2010 also cut another $6 billion in projected spending over 10 years from insurers. Instead of insurance cuts, the Senate farm bill expands insurance with a new program for cotton and add-ons for other, smaller crops. Those insurance programs are meant to help offset cuts to commodity programs.”
The DTN article stated that, “The Government Accountability Office, Congress’ investigative arm on examining government spending, stated in its report a $40,000 cap on premium subsidies would have saved taxpayers $1 billion last year and as much as $358 million in 2010. By the same token, those taxpayer savings would have cost farmers comparable amounts, assuming they would have paid to keep the same level of insurance protection.
“Coburn and Durbin pointed out that taxpayers paid an average of 62% of the premium subsidy in 2011. Earlier this year, the president’s budget called for lowering that to a 50% level.”
Mr. Clayton noted that, “In a statement to DTN, Tom Zacharias, president of National Crop Insurance Services, said crop insurance is popular and proven time and time again to be the most efficient way to deliver assistance to farmers quickly after a disaster to help them recover. Further, the public-private partnership was specifically designed over the past three decades to limit taxpayer risk exposure by shifting it to private business.”
Yesterday’s article added that, “Moreover, the plan recently outlined by the GAO would adversely affect many of America’s full-time farmers, Zacharias said. He cited University of Illinois agricultural economist Gary Schnitkey, who recently looked at the $40,000 cap in terms of how it would have worked in recent years.
“Because of the fact that both the insurable value of crop revenue and premiums go up with high commodity prices, in years where prices are high, farmers will hit the premium cap with fewer acres farmed. For example, a farm in Illinois with 1,682 insured acres would have hit the limit in 2011. In 2010 it would have taken 2,710 acres. A payment limit could have differential impacts on farms, according to Schnitkey. Factors including the amount of specific risk present on a given farm and the amount of acres that are rented for cash could greatly affect when a farm hits the cap.”
Daniel Looker reported yesterday at Agriculture.com that, “Senator Tom Coburn, an Oklahoma doctor who is leading a crusade against the rising federal deficit, is planning to introduce an amendment to the Senate Agriculture Committee’s farm bill that would cap crop insurance premium subsidies.
“Coburn’s spokeswoman, Becky Bernhardt, when asked by Agriculture.com if the Republican senator plans to introduce an amendment with a $40,000 cap or some other level, replied in an email message, ‘The short answer is yes,’ Bernhardt said. ‘It is Senator Coburn’s hope that the ultimate result will be for the Senate to engage in debate and vote on amendments to the farm bill that would include GAO’s recommendations and save taxpayers $1 billion.’”
Mr. Looker indicated that, “Coburn and Durbin responded, too, to members of Congress who say crop insurance programs have already been cut enough.
“‘Let us be clear: further reductions to crop insurance are not a reflection of opposition to the program. In fact, we would argue the opposite – it is critical to make good programs better to ensure they are performing as intended and are fiscally sound taxpayer investments,’ the senators said.”
Yesterday’s article added that, “David Graves, manager and secretary of the American Association of Crop Insurers in Washington, DC, told Agriculture.com that his group has been preparing for floor amendments that might affect crop insurance when the farm bill comes up for a vote in the full Senate.
“‘We know these kinds of questions are out there but over the 30 years I’ve been hearing them, there are always these kinds of questions,’ Graves said.”
“‘We don’t believe Congress should or will be unduly swayed by these arguments because they miss the point,’ [Graves] said—and the point is that all farmers are subject to forces they can’t control.”
Meanwhile, Kim Geiger, writing yesterday at the Los Angeles Times Online, reported that, “The farm bill now before Congress includes a provision — estimated to cost about $3 billion a year — that would help cover the losses farmers suffer before their crop insurance policies kick in. Those losses, termed deductibles, can run in the tens of thousands of dollars for a typical mid-size farm.
“Supporters say it’s a money saver because it would replace an existing subsidy costing $5 billion a year. That subsidy, known as direct payments, pays farmland owners a set amount regardless of whether they’ve planted crops on the land.”
Yesterday’s article noted that, “Critics of the proposal concede it may be less costly than the direct-payment subsidies but say it would still take away U.S. Agriculture Department funds from more important programs such as food stamps, which fed 1 in 7 U.S. residents in an average month last year.”
Along these lines, and in reference to this week’s Institute of Medicine obesity report, “The Weight of the Nation,” The Wall Street Journal editorial board noted today that, “The panelists want to expand farm subsidies—entitlements for plants and animals—to include fruits and vegetables. They would have done far better to endorse an end to subsidies for row crops like corn, which become low-quality calories via refined starches and high-fructose corn syrup.”
In addition, The Washington Post editorial board indicated today that, “The government should eliminate programs that encourage unhealthy eating, such as agriculture supports, and direct the money it spends on school lunches or Supplemental Nutritional Assistance Program (SNAP) benefits — formerly known as food stamps — toward healthier foods. The feds must approach the issue delicately, not dictating diets to the poor. Yet there are reasonable ways to use federal leverage — SNAP spending last year totaled $72 billion — to encourage purchases of oranges over orange soda.”
And a news release yesterday from Rabobank stated in part that, “Health and convenience will be the leading drivers of increased demand for fresh vegetables in the next five years, according to a report released today from Rabobank’s Food & Agribusiness Research and Advisory (FAR) group. The report cites the growing U.S. health crisis and consumer desire for easy-to-prepare meals among the reasons.
“The report notes that even though Americans are concerned about the U.S. obesity epidemic, the stand-alone marketing of a ‘healthy benefit’ to mainstream consumers isn’t enough to increase consumption of fresh vegetables – evident by the overall flat consumption rate of fresh vegetables in recent years. The report recommends that produce firms put more emphasis on creating value-added products that are not only healthy, but easy to prepare.”
Also yesterday, Bloomberg writers Alan Bjerga and Stephanie Armour reported that, “More Americans want additional information on nutrition labels than two years ago while confidence in the safety of U.S. food is unchanged, according to a survey released today by an industry-backed research group.
“Twenty-four percent of respondents said they would prefer more information on labels, including data on nutrition, ingredients and potential allergens and their side effects. That’s up from 18 percent in the International Food Information Council’s previous survey of consumer perceptions of food technology in 2010. Sixty-nine percent were very or somewhat confident in U.S. food safety, the same as two years ago.”
In more specific Farm Bill developments, in a tele-news conference yesterday Nebraska GOP Senator Mike Johanns stated that, “Now that the farm bill has been passed out of the Senate Ag Committee, I and others are pushing for support to get it to the Senate floor. I’ve written a letter urging the Senate party leaders to bring the bill to the floor ASAP, and I’m currently distributing it to my Senate colleagues, trying to gain some support to get this to the floor.
“We continue to work on this. We’ll sign up as many of my colleagues as we possibly can. It is time to get it to the floor. I’ll just remind everybody that, with the end of this crop year, this farm bill expires, so we need to do something.”
Sen. Johanns was asked yesterday: “Senator, the Senate Ag Committee moved so quickly on their side of the farm bill, it seems to be just dragging so much on the House side. Are you guys having some frustrations from a Senate perspective?”
Sen. Johanns replied, “Not yet. My hope is that the Senate proposal will become the template, if you will, for a discussion of ag policy. I would have to imagine that we are — we are going to see the House come up with some different ideas. That is the way things work in a two-house system.
“Chairman Lucas is seeming to indicate that June — sometime in the summer timeframe he’s hoping to go to work on the farm bill. My hope is that our efforts on the Senate side will give them the template, give them the base upon which to build some ideas on the House side, get it done on both sides, get it to conference. There’s still a chance we could get this done.”
A news release yesterday from the House Ag Committee stated that, “Today, Rep. Jeff Fortenberry, Chairman of the House Agriculture Committee’s Subcommittee on Department Operations, Oversight, and Credit held a public hearing to learn more about how credit programs are working for farmers and how they should continue in the 2012 Farm Bill.”
At yesterday’s hearing Rep. Steve King (R., Iowa) queried the panel about crop insurance issues, and in this exchange- audio (MP3- 1:29), Matthew H. Williams, the Chairman and President of Gothenburg State Bank (Neb.) expanded on some of the benefits of the crop insurance program to the agricultural marketplace.
Rep. King also asked the witnesses about conservation compliance and farm program participation. The witnesses noted that conservation compliance should not be linked with crop insurance- audio (MP3- 0:43).
Also at yesterday’s hearing, Rep. Rick Crawford (R., Ark.) had an interesting exchange with Jeff Gerhart, the Chairman, Bank of Newman Grove (Neb.) on the issue of agricultural land values- audio (MP3- 2:38).
Jonathan Weisman reported in today’s New York Times that, “The House approved sweeping legislation on Thursday to cut $310 billion from the deficit over the next decade — much of it from programs for the poor — and shift some of that savings to the Pentagon to stave off automatic military spending cuts scheduled for next year.
“The legislation has no chance of passing the Senate or of becoming law. The White House issued a stern veto threat, saying the bill would ‘fail the test of fairness and shared responsibility.’”
The article noted that, “Republicans framed the fight as a test of seriousness, saying their party was the only one willing to make the difficult choices necessary to tame the deficit. President Obama’s polices are ‘not working’ and need to be changed, said Representative Paul D. Ryan of Wisconsin, the Budget Committee chairman [related statement].”
Bloomberg writer Brian Faler reported yesterday that, “The U.S. House voted to cut food stamps, federal workers’ benefits and other domestic programs to avoid scheduled reductions in defense spending.
“The chamber today passed, 218-199, a plan to cut about $310 billion in spending to replace automatic defense-spending reductions that lawmakers in both parties agree shouldn’t be allowed to take effect in January.”
The Bloomberg article noted that, “State governments ‘wanted to try to make as many federal dollars as available to as many people as possible,’ said Agriculture Committee Chairman Frank Lucas, an Oklahoma Republican.
“Democrats ‘would have you believe that we’re decimating the nutritional safety net and that hungry children and seniors will be left to fend for themselves,’ he said. That’s a ‘scare tactic,’ said Lucas, who said the changes would close ‘program loopholes.’
“The cuts drew a sharp critique from Representative Joe Baca, a California Democrat who said he once relied on food stamps.”
House Agriculture Committee Ranking Member Collin Peterson (D., Minn.) issued a statement yesterday indicating that, ““Everything must be on the table if we are going to have a serious conversation about getting our budget under control. Refusing to consider large budget items like defense and choosing instead to slash nutrition programs that feed millions of hard-working families is not the way to balance our budget. Since we know this isn’t going anywhere the only thing that will likely come out of this vote is an even more divided Congress.
“The farm bill expires this fall and while the Agriculture Committee has a strong history of bipartisanship I worry that if we continue down this partisan path it will be far more difficult to pass a farm bill this year.”
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