Follow us on twitter
Site Feed
Podcast
Email Updates
Appropriations Bill & Budget Process: Central Issues in the ‘07 Farm Bill Debate
I. Appropriations & Budget
II. Farm Bill Environment
III. Farm Policy Ideas
I. Appropriations & Budget
Recall that a Congressional Research Service Report published earlier this month (“Agricultural Issues in the 110th Congress,” by Ralph M. Chite) noted that, “A number of issues of interest to U.S. agriculture are expected to be addressed by the 110th Congress. At the top of the agenda, Congress will be considering the unfinished business of FY2007 funding levels for U.S. Department of Agriculture (USDA) programs and activities in the annual agriculture appropriations bill.”
The C.R.S. report added that, “These funding decisions for FY2007 might intersect with congressional consideration of the FY2008 budget and appropriations, which begins shortly after the release of the Administration’s budget request in early February 2007. Of interest to agriculture is the FY2008 budget resolution, whereby Congress will establish a blueprint for all federal spending over a multi-year period, which could set the fiscal parameters of the next omnibus farm bill, to be debated in 2007.”
In addition, a separate C.R.S. report published in January explained that, “It will be the CBO baseline published in early 2007, in conjunction with the FY2008 budget resolution, that likely will serve as the guide for determining the spending authority included in a 2007 farm bill.”
Philip Brasher, writing last month at the Des Moines Register framed the budget issue this way, “Farmers will look to the Democratic-controlled Congress to provide more money for everything from crop subsidies and conservation payments to disaster aid and biofuels development.
“It won’t be easy for Democrats to deliver.
“They will get to write a new farm bill next year, but to satisfy all the demands for more money, they will need to win passage of a budget plan that will increase the amount of money available for agricultural programs.”
Mr. Brasher then went on to explain that, “Here’s the issue: Without a new budget plan, or budget resolution as it is known in Washington, spending in the new farm bill can’t be higher than it would be if the existing programs were simply extended into the future. Those spending levels are known as baselines.
“As it stands now, that spending allocation would be $13.2 billion for commodity subsidies in 2008, but that number is likely to shrink because of rising crop prices when it is revised in March. The spending level for conservation programs in 2008 would be $4.5 billion.
“By 2012, the level for commodity programs would fall to $10.8 billion, while the limit for conservation would rise to $5 billion.
“Without a budget resolution that increases those limits, it will be hard for lawmakers to raise crop-subsidy rates, as wheat and soybean growers want, or to add the $1 billion in annual spending sought by fruit and vegetable growers, or to increase conservation payments.”
Mr. Brasher then included this succinct analysis, “Ferd Hoefner, policy director of the Sustainable Agriculture Coalition, puts it this way: ‘The first major farm bill decision is what happens in the budget resolution.’”
***
In early October, the Congressional Research Service provided a very detailed overview of the FY2007 appropriations bills (”Agriculture and Related Agencies: FY2007 Appropriations,” October 5, 2006), which noted that, “This report is a guide to one of the regular appropriations bills that Congress considers each year. It is designed to supplement the information provided by the House and Senate Appropriations Subcommittees on Agriculture. It summarizes the status of the bill, its scope, major issues, funding levels, and related congressional activity…”
Of particular interest, on page 22, the C.R.S. FY2007 budget summary provides a breakdown of mandatory conservation programs, including such agri-environmental programs as the Environmental Quality Incentives Program, Conservation Security Program and the Wetlands Reserve Program.
Photo by U.S.D.A./ N.R.C.S.
And some Rural Development issues are highlighted on page 37 and page 38 of the report.
Meanwhile, on December 22nd, the “Washington Insider” section of DTN (link requires subscription) noted that, “Each year, the Congressional Budget Office estimates the cost of implementing ‘current authorities’ for the coming decade, as well as the likely cost of proposals during debates such as will occur next year.”
“Washington Insider” went on to report that, “While debates on program structures can be extremely contentious, they become much more so if they propose spending beyond current baseline levels, because that generally implies cuts elsewhere to fund the proposed benefits.
“Thus, agricultural groups are beginning to look toward next year’s baseline estimates that will be released in March with growing concern. Because the current outlook is for significantly higher future commodity prices, it implies far lower spending on price-linked programs such as marketing loans and the counter-cyclical payments, and a tighter CBO baseline for total spending for the next farm bill. Many things can change between now and March, but some farm groups now assume CBO will estimate that current programs would spend little more than half as much for current authorities in the 2002 Act’s commodity title as was envisioned five years ago.”
The DTN item also indicated that, “Such a shift implies an increasingly difficult battle over resources that most groups would rather avoid. They expect strong efforts to increase conservation spending in the next farm bill, and support for new, big-ticket programs for specialty crops. If the total size of the farm bill commodity pie is reduced by cuts in the CBO baseline, it could make those fights much more contentious.”
A summary item published in yesterday’s Washington Post provided a look at some of the new majority staff directors of the major committees in the House.
With respect to the Appropriations Committee, the Post article reported that, “Robert Nabors, the new staff director, is a native of Fort Dix, N.J. Nabors worked for five years in the Office of Management and Budget before joining Appropriations in 2001. He has been the Democratic staff director since 2004. Nabors holds a bachelor’s degree from the University of Notre Dame and a master’s from the University of North Carolina.
“He said his top priorities for 2007 are to finish work on the nine spending bills that Congress failed to pass last year and to increase oversight. He said he also wants to make sure that bills passed by the new Congress will strike the right balance between investing in critical programs and being financially responsible, a Democratic theme.”
II. Farm Bill Environment
Charlyn Fargo, writing in Sunday’s Springfield Journal Register (Illinois), reported that, “As 2006 draws to a close, farmers have more to be thankful for than when the year started.
“A significant increase in crop prices the past two months, coupled with top-notch yields, has helped many Illinois farmers turn what could have been a mediocre year into a very good one.”
The article added that, “Illinois farm income for the year, based on estimates from about 742 Farm Business Farm Management grain farms around the state, could average $93,500 before taxes.
“That estimate is about $30,000 higher than the five-year average and is roughly three times larger than the yearly estimate for farm income calculated just two months ago – $30,340 – before crop prices began their significant bull run.
“However, not all farmers will have that good a year, only the ones who were able to sell at the higher prices.
“‘We could have significant variances on income from farm to farm depending on (final yields) and when (farmers) marketed the crop,’ said Dale Lattz, U of I Extension specialist, farm management.”
The article also pointed out that, “A [University of Illinois] study released last week, based on Farm Business Farm Management Association records, found that total corn acres in the state increased between 1996 and 2005. The percentage of corn planted the past five years rose by 9 percent in northern Illinois and by 6 percent in central and southern Illinois.
“With higher relative corn prices projected for 2007, Gary Schnitkey, U of I Extension farm financial management specialist, looks for the recent trends to continue.”
An Associated Press article from Sunday stated that, “There is plenty of winter left but this is still an active season for Arkansas farmers. Growers are deciding what to plant in the coming season and working out their business plans for the year.
“‘We’re expecting to see an increase in corn next year and probably an increase in soybeans as well,’ Craighead County Agent Steve Culp said.
“Ethanol, which uses corn, and diesel fuel that uses oil from soybeans are driving up demand, so prices for the crops are higher. Culp said that is helping farmers.
“‘There’s no doubt that corn and soybean prices are being influenced by biofuel production,’ Culp said. ‘Some of that influence will be short term, but a lot of it will be over the long haul.’”
Later, the article added that, “Higher cotton prices and some increases in the price of rice are providing a little optimism for the season ahead.”
Last week, Purdue University Agricultural Economist Chris Hurt noted that, “The news [for corn] continues to be bullish from both the ethanol and the export sectors as well.”
After a more in-depth look at facors impacting corn demand, Dr. Hurt added that, “What all this may mean for corn prices is new contract highs this winter and perhaps into the early spring. Those contract highs would take the futures market back toward $4.00 per bushel and with strong basis levels this could mean that cash prices in central and northern Indiana could approach the $4 mark as well (and 15 or so cents higher at Ohio River markets). If futures make new highs they could quickly propel to $4.25.
“Once futures are above $4.00, there is only the 1995/96 highs as historical precedence. Those highs reached around $5.50 per bushel. Most analyst have felt it would require adverse weather next spring or summer to reach those levels and the historic odds of a weather event dropping U.S. yields 5% or more have been about 22% since 1975. But now, the nearly ‘out-of-control’ growth in ethanol plant capacity is an additional factor that could accelerate corn prices back toward record highs.”
And with respect to livestock, on December 18th, the U.S. Department of Agriculture’s Economic Research Service released the “Livestock, Dairy, and Poultry Outlook,” which noted in part that, “Ethanol demand for corn and continued dry conditions are driving feed and forage prices significantly higher. These factors, combined with large feedlot inventories, continued heavy cow slaughter, and slower-than-anticipated increases in beef exports, are keeping beef production higher than 2005 levels, with a corresponding decline in cattle and beef prices.”
Photo by U.S.D.A.
The E.R.S. report also provided some historic perspective, recalling the market conditions of the mid 1990s when corn prices were also at unusually high levels.
According to the report, “The situation with respect to corn now is different than the situation that existed in 1995/96. Then, drought had temporarily driven grain prices higher, and, as harvest proceeded, prices came down. The present situation, with continued calls for expanding ethanol production, appears longer term, and prices have increased dramatically through the harvest of what is potentially the third-largest corn crop on record. As corn prices increase, the whole livestock feeding complex will have to make longer-term adjustments that in turn will affect other grains and feeds.
“Fed cattle producers may be better able to adapt to higher corn prices than poultry or pork producers because cattle are better able to use distiller’s grains, a coproduct of the ethanol manufacturing process, both because of nutritional reasons and because they tend to be concentrated in large feedlots in relative proximity to ethanol plants. Increasing the percentage of distiller’s grains in cattle rations can offset some of the increased cost of energy in the rations. The amount of corn needed to finish cattle can also be reduced by placing feeder cattle on feed at heavier weights and feeding them for shorter periods. This means heavier feeder cattle might be fed to heavier market weights, although on feed for shorter periods. Were this to happen, it could also mean more beef produced per head and, as the expansion in cattle inventories continues, more total beef might be produced. This would be tempered somewhat by fewer heifers going to feedlots as more are retained for cow-herd building. In addition, as feeder cattle spend more time on pasture and grow to heavier weights before entering feedlots, forage supplies could become tighter.”
III. Farm Policy Ideas
An Associated Press article from Saturday reported that, “The U.S. Department of Agriculture estimates corn prices this year will average about $3.10 a bushel, which nears the high recorded in 1995 after a poor crop and is well above levels that trigger subsidies. That means farmers will get relatively little from the government.
‘”That’s the way the thing is supposed to work,’ said Dennis Topf, who runs T-4 Land & Cattle in Charter Oak. ‘You get it from the market instead of having to depend on the subsidy or something.””
The A.P. story added that, “The subsidies may have helped farmers survive a difficult time, but some are pushing for changes as Congress debates the next farm bill.
“The National Corn Growers Association is promoting a plan that could trigger payments even when market prices are high — if growers lost crops to drought or severe weather.
“Under the proposal, subsidies would be based on changes in a farm’s revenue rather than fluctuations in commodity prices. With the current program, bumper crops can trigger payments by lowering prices, which happened last year. A drought, however, can increase prices and prevent subsidies even if farmers lose their crop.
“Some farm groups have been cool to the idea, which was developed by economists at Iowa State.”
Cyndi Young reported on Friday at the Brownfield webpage that, “Many agricultural organizations hope to have a voice in the shaping of the next Farm Bill.
“Illinois farmer Ron Kindred, who serves on the American Soybean Association (ASA) Farm Bill Task Force, hopes the next farm bill will be good for Illinois farmers and soybean growers. He told Brownfield the ASA task force has seen several proposals.
“‘We are in the process right now of evaluating some of the proposals out there,’ said Kindred.
“The task force is interested in seeing how the revenue proposals would work for farmers, what kind of safety net they would provide for soybeans and what kind of budget impact these would have.
“‘We realize there are inequities in the current Farm Bill and that it is more of a yield-based revenue protection vehicle. We don’t feel the current Farm Bill is a place to go when you need help.’
“Kindred said the dynamics of commodities in the industry have changed dramatically in the past few months, which makes it difficult to use the long lens in writing a Farm Bill that will be in affect for four years.”
-Keith Good
