FarmPolicy.com

Trade Issues Continue to Percolate

Reuters writer Missy Ryan reported on Thursday that, “U.S. cotton production could buckle if the United States bows to the World Trade Organization and eliminates certain subsidies the WTO court has ruled defy global trade rules.

“A drop in U.S. output could send world cotton prices 7 to 8 percent higher, based on 2005 market conditions, if U.S. Congress decides to end two central cotton subsidies under the gun at the WTO, said Daniel Sumner, Brazil’s economist in its landmark case against U.S. subsidies.

“‘Even without the safety net of government-guaranteed revenue, it would still be significant part of the rotation’ in some parts of the cotton belt, said Sumner, a former government economist now at the University of California, Davis.”

The article noted that, “The WTO compliance panel sided with Brazil in concluding that the United States remains in violation of trade rules with its marketing loans and counter-cyclical payments, price-triggered supports found to drive down world cotton price.”

Ms. Ryan explained that, “The U.S. industry, insisting Washington already did enough to comply in the case when it reformed some supports in 2006, sees price suppression of at most 4 percent.

“If the United States did lose an appeal, it could lift the subsidies, or it could leave them in place, choosing to pay compensation or risking trade sanctions.

“The cotton industry is cautious in contemplating how production might change without two mainstay subsidies.

“‘There is no short answer to that, but obviously we think the programs are important to maintaining the structure of the industry we have now,’ said Gary Adams, an economist with the National Cotton Council in Memphis.”

Later, the Reuters article stated that, “Without a government cushion for cotton, Sumner and Adams expect some farmers might quickly embrace other crops, especially those like corn and soybeans that would feed the expanded mandate for biofuels like ethanol.

“Yet Adams says the WTO’s conclusions are hard to accept given rising prices and declining subsidy payments.

“With cotton prices expected to jump by up to a quarter for both the 2007 and 2008 crops, marketing loan payments are expected to drop to zero in 2008. Counter-cyclicals are expected to ring in around $400 million.”

In a related item regarding U.S. domestic policy and the Doha Round of WTO trade talks, The Wall Street Journal editorial board noted in today’s paper that, “With a Soviet-style sugar program, tariffs on Brazilian ethanol, guarantees for cotton-growers that impoverish African farmers and a subsidy-laden farm bill, the U.S. is having a hard time leading in the World Trade Organization’s Doha development round. But next week things will get even worse if the Commerce Department misses a December 24 deadline to comply with a WTO ruling to change its methodology for measuring if foreign producers are guilty of selling at artificially low prices in the U.S.

“The practice in question goes by the arcane term ‘zeroing.’ If that makes your eyes glaze over, focus on this: With the U.S. economy relatively open these days, the ability to assail a foreign competitor for ‘dumping’ — i.e., selling below cost into the U.S. market — is now the most important tool protectionists have to block imports. Currently more than 225 U.S. antidumping orders apply to imports from 39 countries, and a 2005 study by the International Trade Commission found that more than $27 billion in imports were affected by antidumping duties between 1980 and 2005.”

The Journal then explained “zeroing,” saying that, “When Commerce investigates an allegation, it compares the product’s price in the U.S. market to the normal market value of the same good across all transactions. Then it throws out — or zeros — any comparisons that show the price of the goods sold in the U.S. to be higher than the normal market value. Comparisons where the price of the good is lower are counted as evidence of dumping. The average of the transactions that fit Commerce’s definition of dumping are then used to come up with the dumping margin. By sorting only for examples of below-cost transactions, Commerce all but guarantees that protectionist complaints will prevail.”

Concluding, the Journal opined that, “The pressure from protectionists to preserve zeroing is high, and word around Washington is that the U.S. steel industry believes that saving ‘zeroing’ is more important even than promoting a weak dollar.

“But what about the price paid by everyone else? By rigging the game, Commerce is raising costs for U.S. consumers and businesses. By flouting WTO rules, it is also encouraging other countries to use the same tactic against U.S. exporters. It ought to be zero hour for zeroing.”

Meanwhile, the World Trade Organization indicated yesterday that, “Ambassador Crawford Falconer, Chairperson of the agriculture negotiations, circulated on 21 December 2007 four new Working Documents on domestic support. These papers are on the overall reduction of trade-distorting support:

* a tiered formula;
* final bound total AMS [Aggregate Measure of Support]: a tiered formula;
* de minimis; and
* Blue Box

“These papers are one result of intensive negotiations that began in September, on the revised draft ‘modalities’ paper, which the chairperson circulated in July and August,” the WTO noted.

Energy Bill

Although not currently the subject of a WTO complaint regarding market distortions, the new energy bill will likely have some trickle down impacts on market prices and production decisions. Recall that Washington Post writer Steven Mufson described the energy bill on Wednesday, by saying, “For farmers and agribusiness, it is a windfall, providing more support than perhaps even the farm bill.”

(For a more detailed look at Farm Bill spending versus potential Energy Bill spending, see this FarmPolicy.com update from August.)

The Associated Press reported yesterday that, “The new legislation requires refineries to increase the use of ethanol from about 6 billion gallons a year this year to 36 billion gallons by 2022. It also mandates that by then at least 21 billion gallons are to come from feedstocks other than corn.

“That cellulosic ethanol provision will help firms such as Sioux Falls-based Poet, the nation’s largest ethanol producer. Poet has been investing heavily in new processes to produce ethanol not only from corn, but also from the cobs and stalks normally left behind in the fields, said Jeff Broin, Poet’s president and chief executive officer.”

The AP article noted that, “South Dakota’s other major ethanol producer, VeraSun Energy Corp., is also looking to expand beyond traditional corn-based ethanol.

“The Brookings-based company is building an oil extraction facility at its 120 million-gallon-per-year Aurora plant that will yield between 7 million and 8 million gallons of corn oil each year from 390,000 tons of distillers grains, an ethanol byproduct used as a livestock feed.”

In recent opinion regarding the energy bill, an editorial posted yesterday the Kansas City Star Online, noted that, “The new legislation has flaws, though.

“By mandating more production of federally subsidized corn-based ethanol, Congress is promoting the use of a fuel that takes valuable supplies of water to produce, boosts the price of corn and other food products for consumers and — by some estimates — takes more energy to make than it creates.”

“At least the new law also encourages ethanol production using perennial grasses, wood chips and materials other than corn. These other types of ethanol hold more promise.”

Houston Chronicle business columnist Loren Steffy offered this opinion on Thursday, “While the increase would be a boon for ethanol producers, whose stocks rose last week as the bill passed the Senate, the benefits for consumers are less clear.

“The increased production itself may be unattainable. Ethanol remains a fuel without a real market. It exists only because the government pays for it.

“Congress not only wants to broaden that subsidized market, it’s betting that doing so will lead to the development of more economic feedstocks such as the elusive ‘cellulosic ethanol,’ the glimmering El Dorado of biofuels.”

“The Battle For Acreage”

As market prices for several key program crops continue to hover at historically high levels, crop-planting decisions have drawn news coverage.

Associated Press writer Dave Kolpack reported yesterday in an article datelined from Fargo, North Dakota that, “The state corn growers association has outgrown its headquarters, thanks in part to a record year that pushed corn ahead of spring wheat as the state’s No. 1 harvested crop, organization officials said.

“Tom Lilja, director of the North Dakota Corn Growers Association, said Wednesday it may be difficult for history to repeat itself, now that the price of wheat has topped $10 a bushel.

“‘Wheat has fired the first shot on who’s going to plant what next year by running to ten bucks,’ he said at an open house for the association’s new building in south Fargo. ‘Whether the corn or the soybean commodities decide to shoot higher to offset the first shot in that bidding war- I think that’s going to be the key.’”

The article added that, “The amount of corn planted in North Dakota increased by about 800,000 acres from 2006 to 2007, helped by a growing demand for ethanol, a corn-based fuel. Lilja said he would not be surprised if up to 200,000 acres are turned back to wheat in 2008.”

And a Dow Jones article posted yesterday at DTN (link requires subscription) stated that, “A battle for acreage, fueled by high prices, is expected to heat up soon as producers in Western Canada begin to plan ahead for next year’s crops.

“High prices for the various grains and oilseeds will make things interesting as producers will be attracted to the crops that have strong return potential, said Kevin Hursh of Hursh Consulting and Communications Inc., a farmer advisory service in Saskatoon, Saskatchewan.

“‘Often at this time of year an individual can pick winners and losers among the various crops, but this year it appears there are a lot of contenders for acreage next spring,’ Hursh said.”

The Dow Jones article noted that, “But ‘of the crops that are expected to attract attention, canola remains on top of the list,’ he said.

“It’s important to remember that it’s early and producers’ decisions in Western Canada could still change dramatically ahead of spring planting, he cautioned.

“Price, weather conditions, seed availability, fertilizer needs and crop rotation requirements are among the factors that will influence producers’ decisions.”

An item published earlier this week by Mississippi State University indicated that, “World demand for nitrogen, phosphorus and potassium has driven the price of these fertilizers past record levels, and Mississippi producers are trying to make 2008 crop decisions in light of steadily rising costs.

“Improved market prices promoted record corn acreage in 2007. Corn acreage in Mississippi went from 340,000 in 2006 to 960,000 in 2007. However, corn generally requires more fertilizer inputs than the other major row crops.

“Erick Larson, grain crops agronomist with the Mississippi State University Extension Service, said corn acreage will likely drop because of the amount of fertilizer and fuel needed to plant, manage and harvest the crop.”

Farm Bill

An update posted on Friday at the National Association of Wheat Growers Online, stated in part that, “Congress left town this week after passing an omnibus spending measure that, when signed, will fund the government for fiscal year 2008. The omnibus included funding through March 15 for some expired or expiring programs authorized in the 2002 Farm Bill, which should break an impasse on trade promotion program funding.

“The omnibus bill explicitly provides funding for the Market Access Program (MAP), the Foreign Market Development program (FMD), the GSM-102 export credit guarantee program and other trade promotion programs for which funding has been tied up due to the delay in the 2007 Farm Bill.”

And Congressional Quarterly reported yesterday that, “President Bush signed another stopgap funding bill Friday to keep the federal government running while administration officials await the massive year-end spending bill Congress cleared two days ago.”

***

Brownfield’s Peter Shinn reported yesterday that, “A prominent Republican Senator isn’t thrilled with the repeated vows to veto the farm bill by the Bush administration. Another such veto promise came earlier this week.”

Mr. Shinn indicated that, “But the time for such tough talk may be over. That’s according to South Dakota GOP Senator John Thune, who told Brownfield Friday he doesn’t believe the Bush administration’s continuing farm bill veto threats are helpful.

“‘They are, at this point, maybe a little bit counter-productive,’ said Thune. ‘I wish they wouldn’t make those statements because I think that we’re trying to work as hard as we can now to get this bill into a conference setting and produce a bipartisan bill.’

“Thune added that if President Bush wants to influence the House-Senate farm bill conference committee, veto talk simply isn’t the most effective approach. And Thune, who made his remarks at an event in Sioux Falls celebrating Wednesday’s passage of a new energy bill, predicted President Bush will ultimately sign the farm bill into law.

“‘I still maintain that at the end of the day it’s going to be awfully hard for the administration to veto a farm bill that represents a broad, bipartisan effort,’ Thune said.”

DTN Editor-in-Chief Urban C. Lehner noted yesterday (link requires subscription) that, “For while the 79-14 majority in the Senate exceeded the two-thirds needed to override a presidential veto, the majority in the House was only 231-191, far below two-thirds. Salvaging the legislation — either avoiding a veto or lining up the votes to override one — will require changes in the bill. At this point no one can be sure what those changes will be.

“Next stop in the process is a House-Senate conference committee, which must reconcile the two chambers’ differing versions. The veto threat leaves the conferees with a fundamental choice. They can negotiate with the administration in an attempt to come up with a bill the president will sign. Or they can ignore the veto threat, assuming either the president is bluffing or they can find enough votes to override in both houses.

“Considering the differing vote margins, it’s no surprise House and Senate leaders don’t seem to be of one mind on this choice. House Agriculture Committee Chairman Collin Peterson, a Democrat from Minnesota, has offered to sit down with the president personally and work things out. By contrast North Dakota Democratic Senator Kent Conrad, a driving force behind the Senate’s bill, has defiantly warned the president that vetoing a farm bill would court political disaster.”

After more detailed analysis, Mr. Lehner stated that, “Well, the president might be bluffing.

“Then again, maybe not. Despite Senator Conrad’s prediction of political disaster, the White House might calculate that the Democrats need a farm bill, any farm bill, more than the Republicans. The general media has been so overwhelmingly hostile to the current drift of farm legislation that the president might reckon a veto would be easy to spin for political gain.

“If the president’s veto can’t be overridden, then what? An extension of current law? For how long? Which party benefits from that in election year 2008? Which loses?”

Concluding, Mr. Lehner observed that, “By and large, though, we’re still in suspense. There could still be major changes in the farm bill before it’s enacted into law — if it’s enacted into law — and we’ll just have to wait to see how they unfold.

“There’s a reason you don’t see a lot of chess games on television. They’re long and drawn out. This chess game is still very much under way.”

Keith Good

 Email This Post Posted by Keith Good • December, 22, 2007 • 1:55 pm