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Ag Budget Debate: Views From the House and Senate Ag Committees; and Grain Cost Issues
Ag Budget Debate: Views From the House and Senate Ag Committees
A news release issued yesterday by the House Agriculture Committee stated that, “Today, the House Committee on Agriculture adopted the budget views and estimates letter which outlines the Committee’s budget recommendations for the federal agencies and programs under its jurisdiction for fiscal year 2010. The letter will be submitted to House Budget Committee Chairman John Spratt of South Carolina, as required by section 301(d) of the Congressional Budget Act of 1974, as well as clause 4(f) of House Rule X.
“‘Our proposed views and estimates letter outlines the Committee’s legislative agenda and budget considerations for the coming fiscal year. The restructuring of farm and nutrition policies in of the 2008 Farm Bill was done in a fiscally responsible manner. Efficient implementation requires a period of stability,’ said Committee Chairman Collin C. Peterson of Minnesota. ‘The current economic crisis is having broad impact on our nation and the benefits provided by that broadly supported legislation are essential to the well-being of millions of Americans. We urge the Budget Committee to take these points into consideration while crafting a responsible budget resolution for the coming fiscal year.’
“‘I encourage the Budget Committee to honor the commitments made to our producers in the 2008 Farm Bill,’ said Committee Ranking Member Frank Lucas of Oklahoma. ‘At a time when our country is facing an economic crisis and commodity prices are plunging, it is important that we do the best we can to provide our farmers and ranchers with the safety net they need to continue to produce the safest, most abundant food supply in the world.’”
More specifically, the budget views and estimates letter stated that, “The Committee’s legislative agenda and budget considerations for the upcoming year are very much colored by the fact that that we are just nine months beyond enactment of the Food, Conservation, and Energy Act (FCEA) of 2008- a time period which is just half the eighteen months it took to fund and develop the Act. Some programs whose regulations have been delayed are not even operating yet.
“Final passage of the FCEA was supported by over 1,000 organizations from across the policy spectrum. Substantial bi-partisan majorities in both the House (317-109) and the Senate (80-14) supported passage.”
The Ag Committee letter added that, “The current economic crisis is making benefits provided by the FCEA increasingly essential for many families’ existence. The number of Supplemental Nutrition Assistance Program (SNAP-formerly the Food Stamp Program) recipients just hit a record high of 31.8 million in December, 2008 (the latest available). Producers in both the crop and livestock sectors have seen prices decline dramatically from last summer’s record high levels. In many cases, production costs that also hit record high levels last summer have not declined as much as prices- setting up a classic cost-price squeeze.”
“[W]e believe that it would be unwise to reopen the FCEA to reduce program benefits- especially through proposals similar to those that, during the FCEA debate, were considered and rejected,” the letter said.
DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “The House Agriculture Committee sent a unanimous message Thursday that the committee will not support any further cuts in USDA programs or the safety net for farmers, rejecting the Obama administration’s agriculture budget proposal.
“After saying on Monday that President Barack Obama’s budget proposal was ‘dead on arrival,’ House Agriculture Committee Chairman Collin Peterson, D-Minn., said Thursday ‘we might cremate it.’”
Mr. Clayton explained that, “Peterson said he doesn’t think the agriculture proposals in the Obama budget came from Agriculture Secretary Tom Vilsack. Peterson said members of the administration have made some ‘tentative outreach’ to him, but the administration doesn’t like his responses. Peterson said USDA programs have already had their budget cuts.
“‘There are some people at the White House with the view that everyone has to take a hair cut,’ Peterson said. ‘And they are not giving us any credit for what we did.’
“Peterson said he remains frustrated over the cuts he and others administered in agriculture to put together a funded bill while others can pass more than $1.3 trillion in new debt.
“‘I think the budget has much bigger problems than the little tiny bit that agriculture has,’ Peterson said. ‘And I can tell you even if they fixed the ag thing and took it all out of there, I am not going to vote for a budget with a $1.75 trillion deficit. I don’t give a damn what’s in it. It ain’t going to happen.’”
[Note: Recall that in a Senate Budget Committee hearing earlier this week, Sen. Kent Conrad (D-ND) stated that, “Second was on agriculture. And you know I represent an agricultural state. I just spent the last year-and-a-half getting a Farm Bill passed, and we paid for the Farm Bill. We paid for the Farm Bill, but precious little else paid for around here. I was a little taken aback to read that people are suggesting somehow the Farm Bill is not fiscally responsible, because of all the things that have occurred around here in the last two years, it was one of the very few that was actually paid for – and it was done at my insistence – the Farm Bill was paid for. So we made a lot of tough choices. We raised money. We made spending reductions. So those who suggest that it is not fiscally responsible, I don’t think they are very aware of the history of how we got a Farm Bill passed here with 81 votes, overcoming two presidential vetoes, and reopening that at this moment is probably not a real propitious way to advance this budget.”]
Reuters writer Charles Abbott reported yesterday that, “The House and Senate Agriculture committees went on record against cuts in U.S. farm supports on Thursday despite President Barack Obama’s proposal to save $1 billion a year on subsidies.”
The article added that, “Leaders of the Senate Agriculture Committee joined the House committee in saying there should be no cuts. The committees sent their views to congressional budget writers.
“Obama proposed a three-year phase-out of the direct-payment subsidy to farms with more than $500,000 a year in sales, a $250,000 cap on all payments per farm, a reduction in crop insurance subsidies and an end to cotton storage payments. The proposed cut in direct payments drew the greatest attention.”
“Senate Agriculture Committee chairman Tom Harkin, Iowa Democrat, and the panel’s Republican leader, Saxby Chambliss of Georgia, also asked for a $1 billion a year increase for child nutrition programs; additional money to expand biofuels production; and more money, if needed, for food safety, nutrition, land stewardship and other programs,” the Reuters article said.
A news release issued yesterday by the American Farm Bureau Federation (AFBF) indicated that, “The American Farm Bureau Federation joined 38 other agricultural and commodity groups in expressing strong opposition to the more than $16 billion in cuts to the farm safety net proposed in President Barack Obama’s 2010 budget.
“In a letter sent Wednesday to the chairmen and ranking members of the Agriculture and Budget Committees in both the House and the Senate, the broad coalition of farm groups warned that the cuts ‘threaten, once again, to change the rules midstream on American farm and ranch families.’”
The AFBF release added that, “The coalition letter emphasized that the producers are already struggling to understand and comply with confusing, costly and unduly burdensome payment and eligibility rule changes that were unanticipated and far exceed what the farm bill required and Congress intended.”
***
A separate news item released yesterday by the House Ag Committee stated that, “Chairman Collin C. Peterson announced today that the House Agriculture Committee is seeking comments on proposals to address global climate change. The Committee is soliciting the opinions of more than 400 agricultural, environmental, scientific and educational groups and other members of the public, through a print- and web-based questionnaire.
“‘American agriculture producers know what it means to have a green job. For years our farmers, ranchers, and forest landowners have been participating in conservation and carbon sequestration programs, working to reduce emissions and increase efficiency, and support a thriving renewable energy industry,’ said Chairman Peterson. ‘Now we on the Committee would like to know where and how these efforts will fit into the overall task of addressing global climate change. There are many different ideas out there and this questionnaire is meant to ensure that we hear from as many viewpoints as possible on how to incorporate the good work America’s farmers, ranchers, and conservationists are already doing into climate change initiatives, and identify potential benefits for the future.’”
Chris Clayton reported yesterday at DTN (link requires subscription) that, “Secretary of Agriculture Tom Vilsack has been discussing the potential of green payments to farmers under a cap-and-trade program. Vilsack suggested Tuesday in a speech to the American Soybean Growers that such a payment program could pay farmers and ranchers $25 billion to potentially five times that much. Vilsack has said producers should be paid for the benefits they provide under a cap-and-trade system.”
Mr. Clayton explained that, “Republicans on Peterson’s committee are more leery. They didn’t sign off on his questionnaire, but Republican members also did not stop it. Rep. Jerry Moran, R-Kan., said he and fellow Republicans are ‘skeptical’ about what could come of a cap-and-trade system.
“‘It raises a lot of red flags and significant cost increases, but we also recognize that something is developing,’ Moran said.
“Senate Agriculture Committee Chairman Tom Harkin, D-Iowa, also said he has doubts about how a cap-and-trade plan would work and hasn’t made up his mind on legislative proposals.
“‘It seems to me if you are going to have a cap-and-trade system, you’re going to have to make sure the other side, the side sequestering carbon, is really doing what they say they are doing,’ Harkin said.”
In a related article, Jared Flesher reported yesterday at The Christian Science Monitor Online that, “No-till agriculture, in which farmers don’t plow their fields anymore, is one practice said to promote carbon sequestration in the soil. Organic farming is another. Researchers here at the nonprofit Rodale Institute are now developing a hybrid ‘organic no-till’ farming system that they say could sponge up more carbon than any other way of growing food.”
Meanwhile, Steven Mufson reported in today’s Washington Post that, “President Obama’s endorsement of climate legislation to clamp down on greenhouse gases has set off a lobbying rush in Congress and made the air thick with rival proposals.
“Coal companies, utilities, economists and environmentalists are vying to shape legislation that could rechannel hundreds of billions of dollars from one part of the economy to others. The sense of urgency has been heightened by House Energy and Commerce Committee Chairman Henry A. Waxman’s push to have a bill ready by the end of May; the California Democrat plans to circulate a draft in about two weeks.”
The Post article noted that, “At the center of the political battle in Congress are Democratic lawmakers like Sens. Sherrod Brown (Ohio), whose state relies on coal-fired plants for 86 percent of its electricity; Evan Bayh (Ind.), whose state gets 94 percent of its electricity from coal; and Byron L. Dorgan (N.D.), whose state both relies on and exports coal-fired electricity and also has large wind potential. Republican lawmakers in the thick of the battle include Maine’s Sens. Susan Collins and Olympia J. Snowe.”
For more perspective on the potential impacts of climate change, the AP reported yesterday that, “From agricultural losses to devastation wrought by wildfires, California’s economy is expected to see significant costs resulting from global warming in the decades ahead, according to a new report.
“Global warming could translate into annual costs and revenue losses throughout the economy of between $2.5 billion and $15 billion by 2050, according to a summary of cost analyses presented to Gov. Arnold Schwarzenegger’s climate advisers.”
Grain Cost Issues
Boomberg writer Jeff Wilson reported yesterday that, “Corn rose to a six-week high and soybeans gained the most in five weeks after a government report showed improved overseas demand for crops from the U.S., the world’s largest grower and exporter.
“Export sales of U.S. soybeans quadrupled to 837,000 metric tons in the week ended March 5 from 155,800 tons a week earlier, the lowest since September, the Department of Agriculture said in a report. Corn sales rose 38 percent to 1.092 million tons, including 616,600 tons sold to Japan, the biggest buyer of the grain from the U.S.”
The Bloomberg article added that, “Corn also rose on speculation the Organization of Petroleum Exporting Countries will cut oil production for a fourth time since September, boosting demand for alternative fuels made from crops, including ethanol, said Phyllis Nystrom, a branch manager for Country Hedging Inc. in Inver Grove Heights, Minnesota.”
“About 3.7 billion bushels of corn will be used to make ethanol in the marketing year that began Sept. 1, up from a February forecast of 3.6 billion, the USDA said yesterday. A year earlier, 3.026 billion bushels were used to make fuel. Producers have been struggling to make a profit amid fluctuations in corn prices and as energy costs declined.
“Ethanol production rose 1.4 percent to a record 20.342 million barrels in December from a month earlier, the Department of Energy said last month. Output rose 34 percent from 15.161 million barrels a year earlier,” the article said.
And Gregory Meyer reported in today’s Wall Street Journal that, “Oil prices leapt 11%, as the market fretted over a coming meeting of the Organization of Petroleum Exporting Countries.
“Light, sweet crude for April delivery settled up $4.70, to $47.03 a barrel, on the New York Mercantile Exchange.”
Meanwhile, Scott Kilman and Lauren Etter reported in today’s Wall Street Journal that, “Commodity prices are down [graph corn, soybeans and wheat], but the bad news for consumers is that U.S. farmers are responding by cutting back their planting and production, reducing the chances of lower prices reaching the supermarket.”
The Journal article noted that, “Across the nation, farmers are making plans to cut their production of corn, wheat, rice, peanuts, beef, pork, poultry and milk. In addition to growing more soybeans, farmer are also planning to grow crops more cheaply, such as by using less fertilizer and pesticides. Also, some farmers plan to grow just one crop on land that normally produces two each year, and to let some land lie fallow throughout the year.
“Farmers are expected to plant the fewest acres of cotton since 1983, the Agriculture Department estimates. The USDA expects the production of meat from every major category of farm animal to drop for the first time since 1973.”
Kilman and Etter explained that, “The magnitude of the farming retreat won’t come into focus for several weeks. The USDA releases its prospective plantings report on March 31 and the usual start of the Midwest planting season is in April, weather permitting. But orders for seed and fertilizer are already giving clues to grain traders that the acreage of some crops, including corn, might drop by a few million acres.”
Today’s Journal article noted that, “Commodity prices dropped late last year when the thickening global recession helped to drain demand for everything from juicy steaks to the corn used to fatten the steers they come from. Prices of corn, soybeans, wheat and rice have fallen by half or more from last year’s highs. The price received by dairy farmers for milk this year is heading toward the lowest levels since 1978.
“The USDA is predicting that net farm income, a rough measure of profitability, will sink 20% this year to $71.2 billion.
“‘The recession is now catching the farm sector,’ said Jason R. Henderson, an economist at the Federal Reserve Bank of Kansas City, which is detecting the first quarterly decline in farmland prices in a decade. The Federal Reserve Bank of Chicago said fourth-quarter farmland values in its district dropped 4% from the trailing quarter, also its first quarterly decline in a decade”
[Note: see also this article from Wednesday’s Des Moines Register, “Farmland values drop off for first time in decade.”]
The Journal writers went on to explain that, “Outside the farm belt, the drop in commodity prices in recent months is easing the financial pressure on food manufacturers, the biggest of which saw their input costs jump by hundreds of millions of dollars last year. However, consumers aren’t seeing lower grocery prices and aren’t likely to. Michael Swanson, an economist at banking giant Wells Fargo & Co., said he expects retail food prices to climb 2.5% to 3% in 2009, on top of the 5.5% rise in 2008.
“The scope of the production retreat by farmers is fueling concerns among food makers that the costs of their ingredients won’t fully recede to the low levels to which they had grown accustomed before 2007. After trading around $2 a bushel for a decade, the price of corn — the nation’s biggest crop — jumped above $7 a bushel last summer, then fell by half as the recession cooled demand.
“‘Corn is not going back’ to its low levels of earlier this decade, C. Larry Pope, president and chief executive of pork producer Smithfield Foods Inc., said Thursday in a conference call with analysts after reporting a loss of $103.1 million, or 72 cents a share, for the fiscal third quarter ended Feb. 1. Corn, which is fed to hogs, is one of Smithfield’s biggest expenses.”
Keith Good
