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    Friday, May 25, 2012

    Keith Good Farm Policy: Compromise Still Possible for Rice, Peanuts


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    Farm Bill and Policy Issues

    David Rogers reported yesterday at Politico that, “Setting the stage for floor debate next month, the Senate Agriculture Committee formally filed its new farm bill with the full chamber late Thursday, after making final adjustments in a supplemental crop insurance option to ensure a lower-cost score from the Congressional Budget Office.

    “Midwest popcorn producers and a desert terminal lakes program— important to Nevada and Senate Majority Leader Harry Reid—were also the subject of new language. But the much bigger issue—and dollars—centered on revisions to clarify that farmers who enroll in the new supplemental coverage will be subject to a 10 percent deductible.

     

    “Committee staff said this was always the intent going back to when the bill was first reported from the panel in late April. And the clarification was required now only because of a change since then in the CBO’s scoring methodology.”

    Yesterday’s article noted that, “Divisions remain with Southern rice and peanuts producers— unhappy with the bill as now drafted. But [Ag Committee Ranking Member Pat Roberts (R., Kan.)] said he and [Committee Chairwoman Debbie Stabenow (D., Mich.)] are still open to some compromise that will improve the safety net for these commodities.

    “‘The chairwoman and I are working with rice and peanuts as we speak,’ Roberts said. ‘We have done so and we will continue to do so.’

    “Always acerbic, he laughed off any suggestion that he still bears a grudge from those 1990’s farm bill battles with the same Southern interests. ‘I love everybody,’ Roberts said. ‘There is nothing but love in my heart for producers of crops no matter what region.’”

    Reuters writer Charles Abbott reported yesterday that, “The leader of the Senate Agriculture Committee urged hold-out rice and peanut growers on Thursday to give up hopes of higher crop support prices and to join in the transforming of U.S. farm subsidies into a less-costly, government-run risk management system.

    “‘We’re changing the system,’ said Agriculture Chairwoman Debbie Stabenow, by creating a revenue protection program that will replace almost all traditional farm supports in a farm bill that will cut spending by $23 billion over 10 years.

    “Senators could begin debate on the $480 billion bill as early as June 5.”

    The Reuters article pointed out that, “A handful of Southern senators are pressing for higher support prices for rice and peanuts in the bill. On ‘The Diane Rehm Show’ of National Public Radio [transcript available here], Stabenow said ‘a lot of folks would argue’ rice and peanuts got an unduly large share for farm spending in the past.

    “‘What we’re saying, though, is, you know, that the government is not going to guarantee a price forever or programs for folks who plant for the program rather than the market place,’ said Stabenow, a Michigan Democrat.

    “For decades, Southern crops — rice, peanuts and cotton — had higher support rates than wheat, corn and soybeans, justified on the basis of higher production costs.”

    Yesterday’s article added that, “House Agriculture Committee leaders are expected to propose sharply higher support prices in their version of the farm bill as well as a shallow-loss revenue plan. Their revenue plan would not be as generous as the Senate’s, however, because of the cost of the higher target (support) prices.

    “‘We will be looking for ways to make sure we are providing producers as many choices as we can to what risk management tools they want to have in place,’ said Rep Mike Conaway of Texas, a senior Republican on the House committee, also on NPR. ‘We want to make sure the system, the safety net, is as fair across regions as we can make it.’

    “In either case, the $5 billion a year ‘direct payment’ subsidy, paid regardless of need, would end. The House and Senate bills would cut crop subsidies more deeply than conservation spending. While the Senate bill cuts overall spending by $23 billion, the House is expected to aim for $34 billion, or more, and to cut more from food stamps for the poor than the Senate’s $4 billion cut.”

    Meanwhile, Marcia Zarley Taylor reported yesterday at DTN’s Minding Ag’s Business Blog that, “Conventional political wisdom tells us that big farmers extract more benefit from government farm programs than their small- or medium-sized peers. But a financial analysis of more than 300 Midwest corn and soybean farmers by farm size shows that’s not the case. In fact, whether you farm 100 acres or 15,000 acres, government payments averaged only about 2.26% of total farm revenues in 2011, says consultant Sam Bachman of AgriSolutions, Brighton, Ill. ‘That’s not a hugely relevant component of anyone’s farm income.’”

    The DTN update indicated that, “Larger farms usually involve multiple family members and operators, so payment limits designed to curb aid have had little practical effect in rationing payments. ‘There’s a slight disadvantage for being bigger,’ says Bachman. ‘But what strikes you is that there’s really a level playing field in government payments. Small or large, the size of farm doesn’t seem to make much difference to Midwesterners’ bottom line.’”

    And Kansas State University Agricultural Economist G. A. (Art) Barnaby noted in a recent paper (“Is Congress Sure a $40,000 Limit Will Only Affect ‘Big’ Farms?”) that, “Agri-Pulse just published the comments made during the House hearings on the Farm Bill (Volume 8, No. 21, May 23, 2012). During the hearings, policy makers continue to propose payment limits and the latest is a proposal to limit the subsidy in crop insurance to $40,000. The average farmer is paying $18.28 per acre for buyup coverage (Table 1). That means the average subsidy per acre for all levels of buyup coverage is $29.06. These dollar amounts were based on the actual coverage purchased in 2011 and if famers were to maintain their current level of coverage on average it would only require 1,377 acres of owned and cash rented acres to hit the limit. The average subsidy for CAT insured farmers is $15.04 per acre, so they will hit the limit with 2,660 acres based on 2011 premium costs set by the Risk Management Agency (RMA). If they are cash renting, which is very common in the Corn Belt, then all of the subsidy will count in the farmer’s limit. Because cash rented land is treated the same as owned land these limits are more likely to hurt young farmers who probably cash rent more land than they own. Clearly lenders have encouraged crop insurance coverage to protect their collateral so payment limits will affect the available credit.

    “These are average premiums reported in table 1 based on the national aggregate book of business. The 1,377 acres to hit the limit is an average and the national insurance book is dominated by corn and soybeans. However, even on a corn-soybean farm the maximum acres could be less than 600 acres as cited by Ruth Gerdes, Auburn, Nebraska in her House testimony. Dan Carothers, Bakersfield, California, testified that as little as 50 acres would put some specialty crop producers over this proposed limit. Because the 1,377 acres is an average for the 2011 year, some farmers will need more acres while others will need less, depending on the year (premium cost change based on strike price and option premiums), type of coverage, level of coverage, crop, and location. Farmers with annual paid premiums on buyup coverage between $9,000 and $17,000 will start to hit the proposed $40,000 subsidy limit, depending on the type and level of coverage. Farmers can talk to their agent to see if they would be over the limit. Because of premium cost changes between years, one should look at more than one year when checking for the effect of a subsidy limit.”

    Dr. Barnaby added in his paper that, “Payment and subsidy limits make good politics but poor economics. These limits never save the money expected and cause farmers to create new entities to avoid the limits.  The limits will also shift more farmers to crop share rents that create inefficiencies for farmers who are doing no till and crop rotations that often work better when the farmer has total control under cash rent leases. These payment limits often impact the full time efficient farmers and hurt the very group they are suppose to help. It would be more economically efficient to reduce the subsidy rate that will provide a real budget reduction. However, that will cause farmers to reduce their coverage and more to self insure. Can Congress then say no to ad hoc disaster aid and other forms of ‘free crop insurance’?”

    In other developments, a news release earlier this week from Congressman Fred Upton (R., Mich.) stated that, “[Congressman Upton] got a firsthand look at the devastation wrought on southwest Michigan fruit farmers by unseasonably warm temperatures this March followed by April freezes.  Upton toured three Berrien County farms to survey the recent damage to local fruit crops – including apples, cherries, grapes, and peaches – which in many cases have been completely decimated.  Following the tours, Upton took part in a roundtable discussion with several area farmers concerning the major challenges now facing Michigan growers.”

    An update yesterday at The News-Herald (Willoughby, Ohio) Online reported that, “U.S. Rep. Marcia L. Fudge appeared Wednesday at Hastings Farm, a dairy operation in Claridon Township.

    “She was there to listen to concerns of both rural and urban agriculture stakeholders as Congress prepares a new federal Farm Bill.”

    The News-Herald update included a short video of remarks and comments by Rep. Fudge.

    With respect to recent opinion items on the Farm Bill, California farm businessmen John Teixeira and Steve Koretoff noted in a column yesterday at the Fresno Bee Online that, “The Senate Agriculture Committee approved a bill last month, which is unlikely to change much when the full Senate votes later this spring. That means that all eyes will turn to the House Agriculture Committee members. In California, we’ll be looking to Valley lawmakers Jim Costa and Dennis Cardoza.”

    The column stated that, “Between the two of us we grow grains, stone fruits, nuts and small livestock. We understand the diversity of California agriculture. Lone Willow Ranch produces 57 varieties of tomatoes.

    “California historically has been underserved by the farm bill. Our Valley congressmen are positioned to have an important role over the coming months in protecting the programs that truly make a difference to local farmers. These include: access to training and financing; conservation assistance; support for farmers markets and local marketing; and set-asides for beginning farmers.”

    In developments on dairy issues, a news release this week from the International Dairy Foods Association stated in part that, “Two dairy economists recently released intriguing reports on the dairy provisions of the 2012 Farm Bill issued last month by the Senate Committee on Agriculture, Nutrition and Forestry. The reports indicate that dairy stakeholders may not be getting their fair share of Farm Bill outlays and that the Dairy Market Stabilization program included in the Farm Bill would have limited the milk supply to processors nearly one-fifth of the time over the last six years. The reports support the policy position taken by the International Dairy Foods Association (IDFA), which opposes the stabilization program, but supports a compromise margin insurance program not tied to supply management.”

    In news regarding the executive branch, Kevin Concannon, USDA Under Secretary for Food Nutrition and Consumer Services, noted at the USDA Blog yesterday that, “At USDA’s Food and Nutrition Service we are committed to keeping our vital nutrition assistance programs available to those who need them most.  One way to do that is to ensure access.  Another is to ensure integrity—Americans expect us to serve those in need, and they expect us to do so with accountability for the benefits provided.

    “That’s why today, as part of the Obama administration’s ongoing Campaign to Cut Waste, we’ve announced a proposed rule that will provide States with additional tools to maintain integrity in the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps. The proposed rule will help States identify and prevent fraud by allowing them to request client contact when there are excessive Electronic Benefit Transfer (EBT) card replacement requests by SNAP households. The rule also further clarifies the definition of what constitutes trafficking. These new tools are important because excessive card replacement requests by SNAP recipients may indicate that the client does not know how to use the card properly and needs additional help or training, or that fraudulent activity may be occurring that warrants further investigation by the State. To be clear, we expect most requests for replacement cards to be legitimate ones; however, it’s important that we take a closer look at those cases in which cards are replaced at an excessive rate.”

    And Ruth Simon, writing in today’s Wall Street Journal, reported that, “[Charles Ward’s (a 71-year-old former truck driver who bought his $128,000 home in Nelsonville, Ohio, in 2008)] lender isn’t a bank. It is the U.S. Department of Agriculture’s Rural Housing Service, which provides mortgage loans to rural homeowners and guarantees loans made by banks. It accounted for at least a third of all mortgages issued in 2010 in sparsely populated areas such as Morton County, Kan., and Sioux County, Neb., according to data reported under the Home Mortgage Disclosure Act.

    “Unlike private firms, the USDA doesn’t need permission from a court to start collecting on unpaid debts. It can in some cases seize government benefits and tax refunds before a foreclosure is completed. After foreclosure, the USDA can go after unpaid balances, even in states that limit such actions by private lenders.

    “A USDA spokesman says the agency follows all federal and state laws.”

    The Journal article pointed out that, “The USDA is wielding its special powers even as the Obama administration is forcing private banks to give strapped homeowners a break.”

    “USDA officials say their actions are required by the federal Debt Collection Improvement Act of 1996, enacted well before the housing bust produced a wave of delinquencies. They say the agency came under pressure from its own Inspector General in 1999 and from the Government Accountability Office a few years later for being too soft on delinquent borrowers.”

    In other policy related news, Rod Smith reported yesterday at Feedstuffs Online that, “Sen. Diane Feinstein (D., Cal.) introduced this afternoon the Senate companion measure to HR 3798, the Egg Products Inspection Act Amendments of 2012 — legislation that would codify the hen housing agreement between The Humane Society of the United States (HSUS) and United Egg Producers (UEP).

    “The legislation would establish a national standard for hen housing that would transition U.S. egg production away from conventional cages to enriched colony cages by the end of 2029.”

    news release yesterday from UEP and HSUS noted that, “The Humane Society of the United States and the United Egg Producers applaud the introduction of S. 3239, the Egg Products Inspection Act Amendments of 2012, in the U.S. Senate by Sen. Dianne Feinstein, D-Calif., with Sens. Richard Blumenthal, D-Conn., Scott Brown, R-Mass., Maria Cantwell, D-Wash., Jeff Merkley, D-Ore., David Vitter, R-La., and Ron Wyden, D-Ore. joining as original cosponsors. This measure is the Senate companion to H.R. 3798, introduced in January by Reps. Kurt Schrader, D-Ore., Elton Gallegly, R-Calif., Sam Farr, D-Calif., and Jeff Denham, R-Calif.

    “Spurred by a deep commitment to both animal welfare and agriculture, Sen. Feinstein’s legislation will lead to improvements in housing for 280 million hens involved in U.S. egg production, while providing a stable future for egg farmers.”

    Yesterday’s release added that, “‘This legislation will help ensure the American consumers continue to have a wide variety and uninterrupted supply of eggs at affordable prices,’ said Gene Gregory, president of United Egg Producers, which represents farmers who produce nearly 90 percent of the eggs in the U.S. ‘Our industry is being endangered by the growing patchwork of differing and contradictory state laws and ballot initiatives that are impeding the free flow of interstate commerce in eggs that is so vital to grocers, restaurateurs, food manufacturers and consumers.’”

    Amy Harmon and Andrew Pollack reported in today’s New York Times that, “For more than a decade, almost all processed foods in the United States — cereals, snack foods, salad dressings — have contained ingredients from plants whose DNA was manipulated in a laboratory. Regulators and many scientists say these pose no danger. But as Americans ask more pointed questions about what they are eating, popular suspicions about the health and environmental effects of biotechnology are fueling a movement to require that food from genetically modified crops be labeled, if not eliminated.”

    Today’s article noted that, “The most closely watched labeling effort is a proposed ballot initiative in California that cleared a crucial hurdle this month, setting the stage for a probable November vote that could influence not just food packaging but the future of American agriculture.”

    “Tens of millions of dollars are expected to be spent on the election showdown. It pits consumer groups and the organic food industry, both of which support mandatory labeling, against more conventional farmers, agricultural biotechnology companies like Monsanto and many of the nation’s best-known food brands like Kellogg’s and Kraft,” The Times article said.

    Biofuels

    University of Illinois Agricultural Economists Scott Irwin and Darrel Good indicated yesterday at the farmdoc daily blog (“Is the Long Ethanol Boom Coming to a Close?”) that, “U.S. ethanol production has increased rapidly since 2006, reaching about 13.95 billion gallons in 2011 (Table 1). The increase was driven by a combination of high crude oil prices, federal Renewable Fuel Standards (RFS) for domestic renewable fuel consumption, a generous tax credit for ethanol blenders, and large net exports in 2010 and 2011. The expansion in domestic ethanol production has been one of the main drivers of the corn market since 2006, as corn is the primary feedstock for ethanol production in the U.S. The USDA estimates that corn processed for ethanol production totaled 5.021 billion bushels in the 2010-11 marketing year and projects use at 5 billion bushels for the current marketing year. Accounting for co-product production, net corn consumption for ethanol production in 2011-12 will be near 3.35 billion bushels, or about 26 percent of total expected consumption.”

    The update noted that, “The rise in ethanol production has recently run up against what is known as the ‘blend wall.’ Domestic ethanol consumption is almost entirely in the form of low level blends with gasoline capped at 10 percent, although small amounts have been consumed as an 85 percent blend.”

    After additional analysis, yesterday’s farmdoc daily update stated that, “The implication of this analysis is that it is going to be quite difficult to expand or go around the current 10 percent blend wall for domestic ethanol consumption in the near future. Some loosening could occur further down the road if the issues impeding E15 implementation are resolved. However, it does appear that the long boom in U.S. ethanol production is coming to a close. It is important to keep in mind that this does not mean that ethanol production will fall, as the RFS mandate will keep production at least at the level implied by the 10 percent blend wall (as long as blending economics favor ethanol over other gasoline components). This conclusion also implies that the use of corn in the U.S. for ethanol production has reached a plateau for the time being.

    “Unless the blend wall is expanded much sooner than currently envisioned and/or ethanol exports are larger than anticipated, ethanol production is expected to stabilize near current levels. Usage of corn for ethanol production has therefore also reached aplateau. Implementation of E15 is crucial to expanding the blend wall and corn consumption in the future. Reaching the blend wall also has important implications for the future of the RFS. The increasing blending requirements for renewable biofuels cannot be met without expanding the blend wall. Meeting the advanced biofuel requirements with imports of Brazilian ethanol would be infeasible unless the blend wall is expanded. Thus, meeting the advanced biofuel requirements could fall to biodiesel.”

    And DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “The Senate Armed Services Committee approved restrictions on the military’s use of biofuels as part of a $631 billion defense authorization bill the committee approved Thursday.

    “The language on biofuels adopted by the committee was comparable to provisions passed in the House military funding bill last week that also restrict how the military can invest in biofuels.

    “Seven major agricultural, biofuel and aviation groups wrote the senators on Thursday expressing their disappointment in the Senate committee’s action.”

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