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Cabinet Nomination Reaction, Doha, and the Ag Economy
Cabinet Nomination Reaction
DTN Political Correspondent Jerry Hagstrom reported yesterday that, “Farm, agribusiness and consumer leaders praised President-elect Barack Obama’s nomination Wednesday of former Iowa Democratic Gov. Tom Vilsack to be agriculture secretary as a centrist choice who could represent all of agriculture. However, in Vilsack’s and Obama’s statements, there were signs of the conflicts that the new ag secretary and the administration will face as they try to press their priorities on agriculture, nutrition and energy policy.
“At a news conference in Chicago, Vilsack said he would put ‘nutrition at the center of all food assistance programs,’ an indication he will get involved in a congressional battle next year over reauthorization of child nutrition programs. Nutrition advocates want those programs to address child obesity and disease, but the meat, dairy and sugar industries are likely to fight changes that would reduce federal and school purchases of their products.”
Mr. Hagstrom added that, “Iowa has benefited perhaps more than any other state from higher commodity prices due to federal support for corn-based ethanol, but neither Obama nor Vilsack mentioned corn-based ethanol on Wednesday. Even so, the Renewable Fuels Association stated Vilsack ‘has demonstrated a commitment to continuing the innovation and evolution of America’s ethanol industry.’
“Despite Vilsack’s track record on ethanol, the Grocery Manufacturers Association, which opposes government support for corn-based ethanol, was even more enthusiastic about Vilsack’s nomination.
“In an e-mail, GMA noted that as co-chair of a Council on Foreign Relations Task Force on Climate Change, Vilsack ‘indicated his understanding of the need our country has to phase out domestic subsidies for mature biofuels such as conventional corn-based ethanol and to focus on second generation, non-food crop biofuel technologies. We view this as a great opportunity for USDA to lead the way to change course when it comes to our nation’s biofuels policy, moving away from the promotion of corn ethanol and toward energy solutions that do not pit our energy needs against our need for affordable food and enhanced environmental protections.’”
Yesterday’s DTN article stated that, “Commodity and general farm organizations were filled with praise for the pick;” but also noted that, “Countering the agricultural love-fest, the Organic Consumers Association, which opposes biotechnology and had openly opposed Vilsack’s nomination, said Obama’s choice ‘sent a chill through the sustainable food and farming community who have been lobbying for a champion in the new administration.’”
In other news about Obama’s Cabinet nominations from yesterday, when he also tapped U.S. Senator Ken Salazar (D-Colorado) to head the Interior Department, Jim Tankersley and Bettina Boxall reported in today’s Los Angeles Times that, “But in Salazar and former Iowa Gov. Tom Vilsack — a longtime chief executive of a major farm state, nominated Wednesday for Agriculture secretary — Obama is adding two rural-tuned voices to the Cabinet of the most urban president in at least 100 years. Salazar’s adds a background, and perhaps a preference for farm and ranching interests, to the often-contentious politics of western water scarcity.”
The L.A. Times article added that, “The majority of conservationists and rural interest groups say that by choosing Salazar and Vilsack, Obama has taken a step toward fulfilling his campaign promise of revitalizing rural economies.
“‘We’re very encouraged’ by the choices, said Mark Maslyn, executive director of the American Farm Bureau, which recently honored Salazar for his work on agricultural issues. ‘They’re men of substance, and they have a record’ of supporting the renewable energy efforts Maslyn called ‘critical’ for rural economies and the nation.”
And in conclusion, the article from today’s L.A. Times noted that, “With Salazar, Vilsack and other energy-related appointees announced last week, Obama said, ‘I am confident that we have the team that we need to make [the] rural agenda America’s agenda, to create millions of new green jobs, to free our nation from its dependence on oil and to help preserve this planet for our children.’”
More specifically on the biofuels issue, Dow Jones writer Ian Talley reported yesterday that, “The U.S. won’t be able to meet its mandate to produce 36 billion barrels of biofuel by 2022, according to the government’s top energy forecaster.
“The Energy Information Administration predicted the technological breakthroughs necessary to produce the advanced ethanol quantities called for in the mandate would mean only around 30 billion barrels will be produced.
“The prediction comes as President-elect Barack Obama named his Agriculture Secretary nomination, former Iowa Gov. Tom Vilsack, who’s a proponent of advanced cellulosic ethanol, but an advocate of dropping subsidies for corn-based ethanol.”
The Dow Jones article indicated that, “The EIA forecasts ethanol supply from cellulosic feedstocks reaching 12.6 billion gallons (including both domestic and imported production) in 2030, while biodiesel and biomass-to-liquid diesel fuel use rise significantly, reaching nearly 2 billion gallons and 5 billion gallons, respectively, in 2030.
“Renewable Fuels Association spokesman Matt Hartwig said his group had been in discussions with Obama’s transition team about possible funding in the President-elect’s stimulus package expected in the new year.
“‘Ethanol is uniquely poised to employ new technologies and scale up production significantly in the short term to greatly reduce imports of foreign oil and more meaningfully help address the issue of global warming,’ Hartwig said in a statement.”
Meanwhile, Leslie Reed reported in today’s Omaha World Herald that, “U.S. Sen.-elect Mike Johanns, R-Neb., who stepped down from serving as agriculture secretary to pursue his Senate bid, said Obama made a good choice with Vilsack.
“‘He’s a great pick,’ Johanns said. ‘I like him a lot. We were governors in the same cycle, and we worked together.’
“Johanns, however, said Vilsack won’t find it easy to make dramatic change at the Department of Agriculture.
“‘It is not just the USDA. Farm policy in general changes in a sort of an evolutionary way,’ he said. ‘Some of the policies that were part of the first farm bill in 1933, you can see them there all these years later.’”
Reed added that, “With the most recent farm bill just passed this year, Johanns said he doubts Congress will want to reopen the law for significant change before its scheduled expiration in five years. Johanns also noted that Obama generally supported the farm bill.
“But others said the economic crisis and the need to cut the federal budget to help pay for economic stimulus proposals may open the door for the Obama administration to make changes.
“‘Agriculture needs to be vigilant. Just because the 2008 farm bill was enacted and is being implemented, it doesn’t take ag issues off the table for the next four years,’ said Brad Lubben, an extension agricultural policy specialist for the University of Nebraska-Lincoln’s Institute of Agriculture and Natural Resources.”
And Philip Brasher reported in today’s Des Moines Register that, “Tom Vilsack will have plenty on his to-do list at the U.S. Agriculture Department, and a lot of it will look familiar to an Iowan.
“One of the biggest challenges he will face is dealing with the growing global demand for crops for food and fuel and managing the effects of that farm production on the environment.
“No state has been more affected by the growth in biofuel production than Iowa, where livestock farms have been paying higher prices for feed, and increased fertilizer use for corn is threatening water quality. If crop prices soar again as they did this year, he could face pressure to release idled cropland from a federal conservation program.”
Mr. Brasher explained that, “Vilsack also must implement key details of the new farm bill, including new subsidy and disaster-aid programs; manage disputes over trade; and oversee an agency that is supposed to maintain the safety of meat.
“Also, Congress is due next year to rewrite rules for school lunches and other nutrition programs administered by the USDA. Lawmakers will take aim at reducing consumption of drinks and snacks blamed in part for childhood obesity.
“Critics of farm programs expect the former Iowa governor to do as much as he can to enforce and even tighten eligibility rules for farm subsidies, an issue that involves deep regional divisions.”
“The USDA’s budget, now $96.5 billion, also could be the target of budget cuts if Congress acts to rein in spending,” the Register article said.
Doha
Reuters writer Jonathan Lynn reported yesterday that, “Developing countries called at the World Trade Organisation on Wednesday for an early deal on cotton, now that chances of an overall agreement in the Doha round have been put back well into 2009 at the earliest.
“Dusting themselves down from last week’s decision not to seek a breakthrough in the seven-year-old Doha round by the end of this year, many members want to implement an ‘early harvest’ of what has been agreed so far — and cotton is on the list.”
The article noted that, “Cotton is a litmus test of the WTO’s ability to create a fairer trading system for developing countries.
“West African cotton producers, backed by other developing nations, are leading the charge against trade-distorting U.S. subsidies which they say squeeze their own poor farmers out of the market.”
Later in his article, Mr. Lynn indicated that, “On Friday, when he announced his decision not to go ahead, Lamy said the other two issues — a safeguard for farmers in poor countries to deal with a flood of imports, and proposals for duty-free zones in industrial sectors like chemicals — remained stumbling blocks.
“But a deal on cotton now appeared within reach, he said.”
Xinhua news reported yesterday that, “Concluding the Doha Round of trade opening talks should remain a focus of the World Trade Organization (WTO) next year, chief of the organization Pascal Lamy said on Wednesday.
“‘Looking ahead, our aims should not change,’ Lamy told a meeting of all WTO members.
“‘I do not believe that either the political will to preserve the achievements so far or even the necessity to do so will go away, even more so with the continuing deterioration of the economic situation,’ he said.”
An update posted earlier this week at the Real Time Economics Blog (The Wall Street Journal) reported that, “The U.S. Chamber of Commerce, usually one of the most ardent lobbying forces for new free trade agreements, has injected a dose of realism into its expectations for the tenure of President-elect Barack Obama.
“The Chamber’s recommendations for the trade agenda under the next president, released Tuesday, eschew a narrow focus on approving controversial trade deals, and instead seek progress on a broad range of fronts.
“That includes supporting a worker assistance bill early in the next Congress, expanding aid and one-way trade benefits to poor countries, and beefing up export assistance to small and medium-size firms.”
The Blog update added that, “The Chamber’s trade agenda has faltered over the past several years as trade deals with Colombia, Panama and South Korea have stalled in Congress, and the Doha round of global trade talks has careened off course.”
Also on Tuesday, the U.S. Trade Representatives Office indicated in a news release that, “U.S. Trade Representative Susan C. Schwab announced today that the United States increased its annual spending on Aid for Trade programs, also known as trade capacity building, to $2.3 billion in the 2008 fiscal year, an increase of 60 percent from the 2007 fiscal year. Since 2000, the United States has provided more than $9.7 billion in total trade-related assistance to our less developed trading partners.
“‘We continue to work to meet the $2.7 billion target in annual Aid for Trade initiatives by 2010, a commitment we made at the 2005 World Trade Organization’s Hong Kong Ministerial Meeting,’ said Ambassador Schwab. ‘This is another example of the ongoing U.S. commitment to promoting development and achieving a successful conclusion to the Doha Round negotiations.’”
Ag Economy
Brian Baskin reported in Wednesday’s Wall Street Journal that, “Oil futures fell 91 cents, or 2%, to settle at $43.60 a barrel on the New York Mercantile Exchange.”
Steven Mufson, writing in today’s Washington Post, reported that, “The Organization of the Petroleum Exporting Countries yesterday agreed to cut production by 2.2 million barrels a day, slightly more than expected, and called on oil producers outside the group to join in output cuts in a bid to halt the five-month slide in world oil prices.
“But prices continued to fall as traders bet that OPEC’s reductions would not be big enough to offset the steep decline in demand resulting from the slumping world economy. Moreover, many analysts expect that OPEC members will cheat and that actual cuts in production will fall short of the group’s target.
“By the end of trading, the price of light, sweet crude oil for January delivery fell $3.54 a barrel, to $40.06, on the New York Mercantile Exchange. The drop in prices came even though the value of the U.S. dollar fell sharply; that usually drives up the price of oil, which is denominated in dollars.”
Dan Piller noted yesterday at the Green Fields Blog (The Des Moines Register) that, “If you don’t believe there’s a connection between corn and crude oil, look at the behavior of the two on their respective commodity markets Wednesday morning. Crude oil closed down $1.66 per barrel at $45.04 on the New York Mercantile Exchange amid reports of a glut of the stuff in the U.S. caused by lagging demand.”
“Corn meanwhile saw its little rally this week stopped in its tracks Wednedsay on the Chicago Board of Trade, falling 4 cents per bushel to $3.89. Midday commentary from the CBOT noted ‘traders said that a sell off in crude oil and lower stocks contributed to the weakness.’
“Corn and crude have moved in tandem for most of this year as investors have locked onto the idea that corn is now as much a product for energy as agriculture.”
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On a separate but related issue, Dan Piller reported in Tuesday’s Des Moines Register that, “Boosted by strong commodity prices for most of the year, Iowa farmland rose 14 percent this year to an average value of $4,468 per acre, according to Iowa State University’s annual survey.
“But Mike Duffy, ISU economist who conducts the survey among 1,100 land brokers and individuals with land market savvy, said the recent fall in corn prices below $4 per bushel and soybeans below $9 per bushel suggests that land values may moderate in coming months.”
***
Lastly today, Julie Jargon reported in today’s Wall Street Journal that, “General Mills Inc. and ConAgra Foods Inc. each reported sales gains driven by price increases, a sign that food makers are still grappling with high commodity costs.
“Although the prices of grains and energy have fallen from their recent peaks, they are still high, and food companies are continuing to raise prices in an effort to offset the higher costs.”
The Journal article added that, “Price increases aren’t likely to continue at the fast clip at which they have been rising for the past several months. ‘Retailers have been pushing back more aggressively on price increases because they want the packaged-food makers to pass on the benefit of falling commodity costs,’ Credit Suisse analyst Robert Moskow wrote in a note to investors.
“General Mills Chief Executive Kendall Powell said in an interview that when company executives discuss pricing with retailers, they point out that their input costs have risen 25% in the last four years and that they have raised prices only between 8% and 10% during that time. ‘The fact that [commodity] prices are coming down is good thing,’ he said, adding that if they continue to decline, there likely will be fewer and smaller price increases.”
Keith Good
