FarmPolicy

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VOLUME I

March 1, 2007 - June 30, 2007

March 2007 page 2

April 2007 page 138

May 2007 page 263

June 2007 page 407

By Keith Good

President, FarmPolicy.com, Inc.

Champaign, IL

Journalism Fellow

The German Marshall Fund of

the United States

Support for FarmPolicy.com is provided by The German Marshall Fund of the United States

http://www.gmfus.org/economics/

MARCH 2007

Doha Talk Ethanol Issues

Posted By Keith Good On March 1, 2007 @ 4:43 am In Farm Bill, Ethanol, Doha / Trade | Comments Disabled

I. DohaII. Renewable EnergyIII. Farm Bill

I. Doha

John W. Miller reported in todays Wall Street Journal that, World Trade Organization chief Pascal Lamy is hopeful the U.S. and Europe are ready to make enough concessions on cutting farm aid to reopen the stalled Doha round of global trade talks soon, but a final deal still would face major hurdles.

Recent meetings in London between the U.S. and European Union trade negotiators have been useful, although were not in the landing zone yet, Mr. Lamy said in an interview yesterday.

If talks moribund since July are restarted, Mr. Lamy said political realities would dictate a very tight schedule. All e big issues would need to be solved by June, so U.S. President George W. Bush could offer a clear picture to Congress when he asks for an extension of his authority to negotiate trade deals without the possibility of line-by-line revisions by lawmakers. That so-called fast-track authority expires in June.

Energy Secretary Bodman announces that the Department of Energy will invest up to $385 million for six biorefinery projects over the next four years. When fully operational, the biorefineries are expected to produce more than 130 million gallons of cellulosic ethanol per year (Picture and caption from the DOE webpage).

The Journal article added that, So far, the talks havent gotten beyond a dispute between the U.S. and Europe on how much to open their farm sectors. The U.S. says the EU isnt offering enough tariff cuts. The EU says U.S. government subsidies are too high. Negotiators failed to find a compromise last spring.

There is no reason we should make any gestures toward the United States, said French Trade Minister Christine Lagarde. She criticized EU Trade Commissioner Peter Mandelson for offering to cut agriculture tariffs by more than the 39% France says is its limit.

Mr. Lamy believes that Mr. Mandelson can settle the EUs internal discord, and that American farmers can be swayed by promises of opening more markets to important U.S. crop exports such as soybeans and cotton. Trade negotiators often spend two-thirds of the time negotiating with their constituents, he said.

Alan Beattie, writing in todays Financial Times, reported that, Letters from two coalitions of chief executives urging completion of the Doha round in todays Financial Times have a familiar ring. Unlike previous broadsides, there might be a sustained follow-up. [The letters can be viewed here, To let this opportunity slip would be truly shameful; Political leaders must grasp final chance for Doha deal].

Assorted groups of executives and business lobbies have made similar calls in recent years for progress in manufacturing and services liberalisation. But for much of that time, negotiators including Peter Mandelson, European Union trade commissioner, have complained that, with the exception of some service sector companies, there has been a lack of focused day-to-day business pressure for a deal. Such lobbying helped bring the Uruguay round of trade talks to an end in 1994.

Mr. Beattie noted, European officials place the turning point around the beginning of the year. In January, Medef, the French employers confederation, said EU states should give Mr Mandelson freedom to negotiate, defying objections from Paris that he had exceeded his mandate.Brian Wingfield, writing earlier this week at the Forbes webpage, also reported on the status of the Doha talks.

In part, Mr. Wingfield stated that, President Bush is lobbying Congress to renew his trade promotion authority, a fast-track approval for trade deals that expires at the end of June. Last week, Agriculture Secretary Mike Johanns said the administrations current Farm Bill proposalwhich would drastically curb agriculture subsidies and cut farm spending by $10 billion from 2002 levelswould fit very nicely with the Doha negotiations. And earlier this month, WTO negotiations chief Pascal Lamy said talks have fully resumed, albeit informally.

Nonetheless, the business community doesnt seem to be holding its breath for a Doha restart.

The Forbes piece went on to note that, Congress was willing to extend the current farm legislation for a year when it seemed like there could be a breakthrough in the Doha talks last summer, but when the negotiations broke down, it moved forward with crafting the bill now being considered. If the talks are resumed, it could have to go back and revise a farm bill passed later this year, which could complicate things even further.

Meanwhile, Greg Hitt reported in todays Wall Street Journal that, The Bush administration and congressional Democrats are attempting to negotiate a grand compromise on trade that would allow several deals to move forward by elevating the importance of labor rights in those agreements.

After Democrats won control of Congress in November, in part by attacking free-trade agreements, President Bushs globalization agenda seemed all but dead for the rest of his term. Among priorities were bilateral deals with Peru, Panama and Colombia; the Doha round of multilateral talks; as well as renewal of a broad presidential authority to negotiate agreements and push them through Congress, which expires in June.

But the White House and lawmakers have decided to try to find common ground, as Mr. Bush has signaled flexibility on labor standards after years of resisting. The talks are being led by U.S. Trade Representative Susan Schwab, House Ways and Means Chairman Charles Rangel of New York and Rep. Jim McCrery of Louisiana, the ranking Republican on the committee. Much of the negotiations have been at the staff level, but the three principals have played a role, conferring in face-to-face meetings on Capitol Hill or over the phone.

Mr. Hitt indicated that, A successful agreement could clear passage of the Latin America deals and help jump-start the stalled Doha round. It could also presage bipartisan cooperation on other fronts, such as climate change, middle-class taxes and immigration.

In a related item, Deborah Solomon, reported in todays Wall Street Journal on the issue of federal programs that are designed to help workers who are displaced by various aspects of trade agreements (Federal Aid Does LittleFor Free Trades Losers).

Ms. Solomon explained that, The issue: Should Washington give up on such programs, or should it expand them and try to make them work better? For the moment, people on both sides on Capitol Hill say President Bush will need to beef up programs for those hurt by imports if he wants congressional backing for new trade legislation.

Mr. Bush wants Congress to extend his authority to negotiate trade deals and put them to an up-or-down vote in Congress. The administration also is trying to restart the Doha Round of global trade talks.

The White House has promised to offer legislation to extend and improve the Trade Adjustment Assistance program, which includes both the health-insurance assistance and wage insurance. However, it didnt include many specifics in its budget for the year beginning in October. Several Democrats and Republicans in Congress are proposing to expand TAA to cover more workers, including those in service industries.

(For a more specific look at trade adjustment assistance for U.S. farmers, see this piece, which was posted last week by Ross Korves).

II. Renewable Energy

Ethanol issues continue to be a leading policy variable in the 2007 Farm Bill debate. Future federal policy and technological advancements will impact ethanol use and the feedstock sources used to generate ethanol. These issues will influence the long-term level of use of domestic corn production, which will have a bearing on the viability of the demand driven surge in the price of some program crops such as corn.

Yesterday, the U.S. Department of Energy issued a news release, which stated that, U.S. Department of Energy (DOE) Secretary Samuel W. Bodman today announced that DOE will invest up to $385 million for six biorefinery projects over the next four years. When fully operational, the biorefineries are expected to produce more than 130 million gallons of cellulosic ethanol per year. This production will help further President Bushs goal of making cellulosic ethanol cost-competitive with gasoline by 2012 and, along with increased automobile fuel efficiency, reduce Americas gasoline consumption by 20 percent in ten years.

The DOE release added that, Todays announcement is one part of the Bush Administrations comprehensive plan to support commercialization of scientific breakthroughs on biofuels. Specifically, these projects directly support the goals of President Bushs Twenty in Ten Initiative, which aims to increase the use of renewable and alternative fuels in the transportation sector to the equivalent of 35 billion gallons of ethanol a year by 2017. Funding for these projects is an integral part of the Presidents Biofuels Initiative that will lead to the wide-scale use of non-food based biomass, such as agricultural waste, trees, forest residues, and perennial grasses in the production of transportation fuels, electricity, and other products. The solicitation, announced a year ago, was initially for three biorefineries and $160 million. However, in an effort to expedite the goals of President Bushs Advanced Energy Initiative and help achieve the goals of his Twenty in Ten Initiative, within authority of the Energy Policy Act of 2005 (EPAct 2005), Section 932, Secretary Bodman raised the funding ceiling.

(To read Sec. Bodmans remarks on this announcement, just click here).

In media coverage of this development, Alexei Barrionuevo reported in todays New York Times that, Seeking to encourage motor fuel production from materials that are cheaper and more abundant than corn, the Energy Department said yesterday that it would provide up to $385 million in six bio-refinery projects that would produce cellulosic ethanol, a type of ethanol that can be made from nonfood crops and agricultural waste.

The Times article also included this explanation: Dozens of ethanol refineries that use corn are planned for construction over the next two years. But Mr. Bodman acknowledged yesterday that corn alone would not be enough to achieve the ambitious goal of taming what Mr. Bush has called Americas oil addiction.

Because of constraints on farmland and the need for corn in the food supply, corn-based ethanol can produce only up to 15 billion gallons of ethanol, less than half of the 35 billion gallons of renewable and alternative fuels the president set as a goal by 2017 in his State of the Union speech in January.

Corn-based ethanol is already playing a key part in reducing our dependence on fossil fuels and mitigating the growth of greenhouse gases, but we cannot increase our use of corn grain indefinitely, Mr. Bodman said.

John J. Fialka reported in todays Wall Street Journal that, The Department of Energy has kicked off a technological horse race to see which among six companies can produce a transportation fuel that is an alternative to corn-based ethanol, in commercial quantities, at a cost of around $1 a gallon.

The Journal article stated that, Currently the U.S. produces about six billion gallons of ethanol. Mr. Bodman estimated that corn-based production could increase to 12 to 15 billion gallons, but farm experts worry that soaring demand for corn by ethanol refineries will push food and meat prices up to politically unacceptable levels.

Dan Chapman reported in todays Atlanta Journal-Constitution that, The Bush administration, keen to reduce dependence on foreign oil, handed out $385 million in grants Wednesday to companies that plan to produce ethanol, including a Colorado firm building a factory in Soperton.

Range Fuels Inc., founded by venture capitalist Vinod Khosla, could receive as much as $76 million from the U.S. Department of Energy to help turn pine tree branches into fuel to reduce gasoline consumption and climate-harming chemicals.

Now, the race to produce the first commercially applicable use of so-called cellulosic ethanol shifts into high gear. Range Fuels officials say theyll win and reap significant patent and financial rewards.

Philip Brasher reported yesterday at The Des Moines Register Online that, Broin Cos. will receive up to $80 million to build a biorefinery that would make fuel from corn cobs as well as corn kernels in Emmetsburg.

The U.S. Department of Energy announced today that the Iowa project was among six that will receive as much as $385 million over the next four years to make the next wave of ethanol.

The other projects are in California, Florida, Georgia, Idaho, and Kansas.

According to a Government Accountability Office release, in testimony delivered yesterday before the House Subcommittee on Energy and Water Development, Committee on Appropriations, Jim Wells, Director, Natural Resources and Environment, noted that, One of ethanols biggest challenges is to cost-effectively produce ethanol while diversifying the biomass energy sources so it can grow from its current 3-percent market share. DOE is exploring technologies to use cellulosic biomass from, for example, agricultural residues or fast-growing grasses and trees. In addition, ethanol requires an independent transportation, storage, and distribution infrastructure because its corrosive qualities and water solubility prevent it from using, for example, existing oil pipelines to transport the product from the Midwest to the east or west coasts. As a result, fewer than 1,000 fueling stations nationwide provide E85 compared with 176,000 stations that dispense gasoline. Ethanol also needs to become more cost competitive. Even with the recent spikes in gasoline prices, ethanol producers rely on federal tax incentives to compete. In October 2006, Consumer Reports estimated that drivers paying $2.91 per gallon for E85 actually paid about $3.99 for the energy equivalent amount of a gallon of gasoline because the distance vehicles traveled per gallon declined by 27 percent. Finally, congressional earmarks of DOEs biomass R&D funding rose from 14 percent of the fiscal year 2000 funds to 57 percent ($52 million) of the fiscal year 2006 funds, according to a DOE program official.

Also yesterday, the 25 x 25 group (the name derives from a goal to get 25 percent of energy from renewable resources like wind, solar, and biofuels by the year 2025) released their action plan yesterday.

American Farmland Trust (AFT) issued a news release yesterday regarding the action plan, which stated in part that, AFT supports the new direction in the 25 x 25 Alliances report. We join them in calling on Congress to construct renewable energy policies and programs that promote economic opportunities within the agriculture and rural communities, yet strengthen environmental stewardship and conservation of natural resources and the environment, says AFT President Ralph Grossi. However, increasing our commitment to the production of renewable energy must go hand in hand with an increased commitment to working lands conservation programs to help mitigate the intense pressures that such a shift in energy policy brings. AFT notes that the 25 x 25 report wisely recommends the preservation of a strategic land base for the future production of food, feed, fiber and energy by increasing funding for the Farm and Ranch Lands Protection (FRPP) program, and other conservation measures.

Senate Agriculture Committee Chairman Tom Harkin also issued a release on this issue. Chairman Harkin stated that, The convergence of agricultural and forestry production capabilities to meet national energy needs should be a major driver of the 2007 farm bill. Energy security is tied to national security and also means income and economic opportunity for agriculture and rural America, said Harkin. If we are to attain national energy and economic security for our nation, we must reach these aggressive but achievable energy goals.

III. Farm Bill

The House Agriculture Committee issued a news release yesterday, which stated that, Today, the House Agriculture Committees Subcommittee on Horticulture and Organic Agriculture held a hearing to review the U.S. Department of Agricultures proposals for specialty crops and organic agriculture in the 2007 Farm Bill. Congressman Dennis Cardoza of California is Chairman of the Subcommittee.

The release noted that, The subcommittee heard testimony from U.S. Department of Agriculture Deputy Secretary Chuck Conner. Deputy Secretary Conner answered questions from subcommittee members about the specialty crop title to the USDA 2007 Farm Bill proposals the agency released on January 31.Michael Doyle reported in todays Sacramento Bee that, California fruit and vegetable growers will get more federal help in a new farm bill. Everyone agrees on that.

But as lawmakers do crucial legislative spadework this week, they are exposing conflicts and unanswered questions. Beneath some shared billion-dollar dreams, hard decisions await.

This farm bill will not be an easy one, Rep. Dennis Cardoza, D-Atwater, acknowledged at a hearing on Wednesday.

For fruit and vegetable growers, the specific questions now needing clarification include:

* How much freedom will subsidized rice and cotton growers have to start planting fruits and vegetables? The Bush administration wants to lift current planting restrictions, which alarms specialty crop producers wary of more competition.

* How much total money will be available for farmers, and will more fruit and vegetable spending mean less for traditional subsidized crops? The overall budget cap will be among the first challenges resolved this year.

* Precisely how will the government distribute new specialty crop research funds, such as the $1 billion the Bush administration wants to spend over the next 10 years? Will lawmakers simply earmark money for their favorite universities?

* Is there any danger in the federal government buying lots more fruits and vegetables, as in the Bush administration proposal to spend an additional $2.75 billion over 10 years?

Im somewhat concerned about a situation where the farmers are relying on the federal government to create a market, Cardoza acknowledged.

Ethanol, Corn Use and Prices

Posted By Keith Good On March 2, 2007 @ 5:17 am In Farm Bill, Ethanol, Budget, Doha / Trade | Comments Disabled

I. EthanolII. Farm Bill BudgetIII. Doha

I. Ethanol

Guy Caruso, the Administrator of the U.S. Department of Energys Energy Information Administration, testified before the Senate Committee on Energy and Natural Resources yesterday.

According to a statement of his remarks, Mr. Caruso noted that, Ethanol use grows in the AEO 2007 [Annual Energy Outlook 2007] reference case from 4 billion gallons in 2005 to 14.6 billion gallons in 2030 (about 8 percent of total gasoline consumption by volume). Ethanol use for gasoline blending grows to 14.4 billion gallons and E85 consumption to 0.2 billion gallons in 2030. The ethanol supply is expected to be produced from both corn and cellulose feedstocks, both of which are supported by ethanol tax credits included in EP Act 2005 [Energy Policy Act of 2005], but domestically-grown corn is expected to be the primary source, accounting for 13.6 billion gallons of ethanol production in 2030.

A Congressional Quarterly summary of Mr. Carusos testimony indicated that, The nation used more than 5 billion gallons of ethanol last year and is on track to exceed the mandate laid out in the 2005 energy law (PL 109-58) of 7.5 billion gallons annually by 2012.

Ethanol prices might fall in the short term as supply exceeds demand, but the biofuel is likely to remain more expensive than gasoline in the long run, Caruso said. He said EIA is projecting biofuel production at about 12 billion gallons annually by 2017 significantly less than the 35 billion gallons of alternative fuels that the president called for in his State of the Union address last month.

A Dow Jones article on this subject, noted that, Asked if its possible to meet the presidents goal, Energy Information Administration Administrator Guy Caruso said hes not sure.

Id say we need a lot more information to answer that question, Caruso said, responding to a question posed by Senate Energy and Natural Resources Committee Chairman Jeff Bingaman, D-N.M.

The Bush administration has touted the alternative fuels goal as part of its effort to increase use of cellulosic ethanol, a biofuel that can be produced from agricultural waste rather than crops needed for food. The president sees greater cellulosic ethanol production as a key to reducing gasoline use and thus, reducing the countrys dependence on foreign oil.

Under current government policies, however, ethanol production would grow to just 12 billion gallons in 2017, according to EIAs most recent forecast. And most of that would be corn-based ethanol, not cellulosic, Caruso told the Senate energy panel.

Still, the administration is planning on submitting legislation to Congress that would mandate greater use of alternative fuels in the nations fuel supply.

Meanwhile, Dow Jones writers Lester Aldrich and Tom Sellen reported on comments made yesterday at the USDAs 2007 Outlook Conference on this issue, President George Bushs mandate of 35 billion gallons of renewable and alternative fuels by 2017 is a very aggressive goal, [Greg Page, president and chief operating officer of Cargill Inc.] said. It means heavy government involvement in the technology needed to produce that much, and it also means a coordinated policy effort to guarantee increased use of that much fuel.

Candidly, we were quite surprised by both the extent of the mandate and the timetable, [John Johnson, president and chief executive of CHS Inc.] said.

Patricia Woertz, president and chief executive of Archer Daniels Midland (ADM), the largest U.S. ethanol producer, said that while she agrees with the goal of Bushs mandate, the devils in the details.

Woertz said she sees breakthroughs in cellulosic research and development, together with current technology, but this only adds up to 14 billion to 15 billion gallons of alternative fuels, not 35 billion.

According to a transcript of the full remarks delivered at the Outlook Conference by Greg Page of Cargill, he also pointed out that, The UN estimates that by mid-century, food production must double from current levels to feed the worlds people. As we devote a greater proportion of crops to fuel, we can expect the pressures on the supply and demand equations to cause the price of food to rise. Higher food prices across the globe certainly will impact people in less developed countries far more than those in the developed world who can more easily adapt to price increases.

The world, through new agronomic technologies, may be able to support a biofuels industry while also feeding the world. But, is it really that simple and is that the end of the story? As leaders, we should be asking ourselves this question: What prices are we prepared to make the worlds poor pay for food? As a developed society we will have the capability to produce both food and renewable fuel, but what will be the cost to those who can least afford it? As a responsible society, we need careful thinking and planning as we navigate new ground and continue to face the challenge of providing food to an ever-expanding world population.

In promoting biofuels, policymakers must face this challenge head-on. We all must consider the impact biofuels promotion will have on food and feed supply chains, and on choices around land and crop use. As competitive pressures build over the use of land for food, feed and fuel, the costs of all three will rise.

Doug Carmeron, writing earlier this week at the Financial Times webpage, reported that, The [Presidents] targets are viewed as ambitious, and many industry experts said a large question mark hangs over the need to produce an additional 20bn gallons a year in ethanol and biodiesel made from cellulosic material such as sawgrass, which critics argue is far from being commercially viable.

The department of energy on Wednesday announced plans to invest $385m in six projects which would produce 130m gallons a year of cellulosic ethanol.

These biorefineries will play a critical role in helping to bring cellulosic ethanol to market, and teaching us how we can produce it in a more cost-effective manner, said Sam Bodman, the energy secretary.

The energy department has increased co-operation with the department of agriculture to promote more renewable fuel capacity, intensifying the lobbying for research funds, grants and subsidies as part of the new farm bill being developed this year. The White House is seeking an extra $1.6bn in funds to back the planned expansion.

U.S. Secretary of Agriculture Mike Johanns, who also addressed the USDA Outlook Conference yesterday, stated that, We are in the middle of a boom in demand for renewable energy. New ethanol and biodiesel plants are going up all over the country. Many of them in our rural areas are bringing jobs and economic opportunities that just a few years ago people were ready to proclaim were dead. Just to put it simply, the nations demand for renewable energies and the goal of achieving greater energy independence that President Bush has set for us have created a strong industrial demand for our agricultural crops.

Now, I believe that this is the bedrock change whose consequences are reshaping agriculture not only today but for years to come. Its probably why an acre of prime farmland in Iowa just sold for $6,000, a record.

Sec. Johanns added that, We realize that all of this is causing pain for those who rely upon corn to feed animals and as an ingredient in food products. And we are concerned about that. In the long run, balancing the competing demands for corn and meeting the energy goals that President Bush has set for the nation is going to require using other feedstocks like biomass to produce ethanol. Thats where were headed in the future in my judgment.

Peter Shinn of Brownfield reported yesterday that, USDA is expecting a massive acreage shift to corn this spring, even more than it thought just two weeks ago when it released its 10-year agricultural baseline estimates. Thats according to USDA Chief Economist Keith Collins who addressed a standing room only crowd of more than 1,600 at the U.S. Ag Outlook Forum in Washington D.C. Thursday morning.

We foresee corn planted area for 2007 increasing 8.7 million acres to 87 million acres in 2007, Collins said. Itll be the highest corn plantings in 60 years.

Collins left little doubt that a huge jump in corn profitability is driving the quantum leap in corn acres. Were projecting corn net returns at $334 per acre, Collins said. Thats up $209 from last year, almost 70%. (A full transcript of Dr. Collins presentation can be viewed here).

Associated Press writer Libby Quaid added yesterday that, Farmers are expected to grow a record 12.2 billion bushels of corn in 2007, said Keith Collins, the departments chief economist. An estimated 3.2 billion bushels will go into ethanol, up from 2.15 billion in 2006.

Even with that increase, we think production will fall short of demand, Collins said during the departments annual Agriculture Outlook Forum.

The A.P. article indicated that, Agriculture Secretary Mike Johanns downplayed any impact on food costs, saying the department anticipates increases of 2 percent to 3 percent every year.

It can be a dozen different factors from farm to table that can impact that price, Johanns told reporters.

The chairman of the House Agriculture Committee said higher food prices arent all bad.

Frankly, we have been underpricing our food in this country, said Rep. Collin Peterson, D-Minn. What this fuel thing is going to do is cause us to re-price our food to some extent. So consumers are going to pay more, and in my opinion, they should be, because weve been subsidizing them.

Considering the high profitability of corn acreage, University of Illinois Agricultural Economist Gary Schnitkey recently penned a short article that noted in part: Projected prices for the 2007 crop indicate that corn will be much more profitable than soybeans on Illinois, high-productivity farmland. A question is: Why plant soybeans at all? A strategy that has relatively high profits and low risks is to plant all corn and lock in profits by purchasing a revenue insurance product with a high coverage level.

Dr. Schnitkey provided a brief, but detailed analysis of this issue and noted that, Planting all corn in 2007 likely will be more profitable than planting soybeans on farms with high-productivity farmland. Revenue insurance at high coverage levels can be used to lock in profits, thereby reducing risks from planting all corn.

Difference in corn and soybean yields across farms will impact the advisability of planting all corn. A Microsoft Excel spreadsheet entitled the Corn-Soybeans Rotation Tool is available in the FAST section of farmdoc [webpage]. An individual can use this spreadsheet to evaluate the profitability of specific situations.II. Farm Bill Budget

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 Committees budget recommendations for the federal agencies and programs under its jurisdiction, outlining the funding issues at the forefront of the upcoming Farm Bill reauthorization. The letter will be submitted to Budget Committee Chairman John Spratt of South Carolina pursuant to section 301(d) of the Congressional Budget Act of 1974 and House Rule X, clause 4(f).

Our action today represents an early step on our road to the development of the 2007 Farm Bill, Chairman Collin Peterson said. Because the budget resolution will, in effect, determine the amount of funding we will have to write the farm bill, its shape and form will have a crucial impact on our work. Our proposed views and estimates letter sends these messages: the 2002 Farm Bill is fiscally responsible. It is popular in farm country. And it is serving to enhance the well-being of our farmers, ranchers, needy citizens, and consumers.

We urge the Budget Committee to carefully consider the budget views and estimates letter we are submitting and not solely base their decision on projected baselines. Were asking that they not turn their backs on Americas farmers and ranchers and provide the Agriculture Committee with the funds needed to address the wide variety of issues facing Rural America, said Ranking Member Bob Goodlatte.

The Washington Insider section of DTN included an excellent summary regarding some aspects of the budget process in an update from yesterday (link requires subscription). In part, the DTN item noted that, The congressional baseline that is presented this month likely will indicate a reduction in commodity spending needs on the order of 40 percent for FY08-17. At the same time, the federal budget is running large deficits and there is intense competition for funds for the war on terror, for national infrastructure and for social programs. In that environment, Congress may choose once again to add funds to the congressional baseline for agriculture, but such a decision likely would be difficult and highly controversial, Washington Insider believes.

Jaclyn Houghton of the CNHI News Service, reported yesterday at the Daily Times webpage (Oklahoma) that, U.S. Rep. Frank Lucas, R-Okla., represents many of the farm and ranching communities in the 3rd District and also serves on agriculture committees in the U.S. House of Representatives. Lucas, a western Oklahoma farmer and rancher, said the country is running in a deficit this year and there will more than likely be program cuts.

The article added that, He said many of his farming constituents would prefer to keep most of the current Farm Bill that was written in 2002.

But he said since Democrats have gained the majority in the House and Senate there may be a push for changes to the bill. He foresees cuts to the commodity programs and the growth of conservation efforts.

III. Doha

Reuters writers Doug Palmer and Richard Waddington reported yesterday that, Key trade ministers will meet in London over the weekend, diplomats said on Thursday, as pressure mounts for a breakthrough in struggling global free talks.

The talks will be the first involving ministers since World Trade Organisation (WTO) states agreed in late January to resume negotiations after a six-month suspension forced on them by failure to resolve deep differences, notably over agriculture.

Diplomats, who declined to be identified, said the talks involving the United States, the European Union, Brazil and India would aim to build on some progress made at meetings between senior officials also in the British capital last week.

The Reuters article added that, We are now on a path that can lead us to a successful result, Deputy U.S. Trade Representative John Veroneau said in remarks at the Swedish Embassy.

One diplomatic source, who asked not to be identified, went further and said the United States and the European Union had basically reached a deal on farm subsidies and tariffs. Theyre getting very, very close, the source said.

But in Brussels, a senior EU official poured cold water on the idea that an agreement was near. We are making progress, but there is still quite a distance to go, the official said.

It was too early to say whether talks in London between U.S. Trade Representative Susan Schwab, EU Trade Commissioner Peter Mandelson, Brazils Foreign Minister Celso Amorim and Indias Trade Minister Kamal Nath would produce results, diplomats warned.

An Associated Press article from yesterday noted that, Top trade negotiators from the United States, the European Union, Brazil and India will meet in London and Geneva this weekend to discuss long-struggling World Trade Organization efforts to liberalize global commerce, officials said Thursday.

It will be just bilaterals, said Clodoaldo Hugueney, Brazils ambassador to the WTO, who will accompany Foreign Minister Celso Amorim in the talks. U.S. Trade Representative Susan Schwab, EU Trade Commissioner Peter Mandelson and Indias Trade Minister Kamal Nath also were expected at the meetings.

The A.P. article indicated that, European and U.S. officials confirmed the bilateral meetings, but said no sessions were currently planned bringing together all four ministers representing the countries largely seen as the main power brokers within the 150-member WTO.

A separate A.P. story from yesterday reported that, German Chancellor Angela Merkel said Thursday that pressing ahead this year with the stalled Doha round of world trade talks is an urgent priority, and also advocated stronger U.S.-European economic ties.

Germany currently holds the presidency of both the European Union and the Group of Eight.

A key point for us this year is the conclusion of the Doha round, a successful conclusion, for which we will make a massive effort, Merkel said in a speech to the German parliament.

Budget Developments- Farm Bill

Posted By Keith Good On March 5, 2007 @ 6:30 am In Farm Bill, Budget, Doha / Trade | Comments Disabled

I. BudgetII. Farm BillIII. DohaIV. Speaker Pelosi: Ethanol- Disaster Aid

I. Budget

Recall that the Congressional Budget Office (CBO) will issue a report containing a full analysis of Presidents budget proposal for fiscal year 2008 on Friday, March 16. In the meantime, CBO issued a Preliminary Analysis of the Presidents Budget Request for 2008 on Friday (March 2).

According to Fridays report, CBO indicated that, In 2008, CBO estimates, the deficit under the Presidents budget would again total 1.6 percent of GDP (amounting to $226 billion in nominal dollar terms)about twice the shortfall that CBO projects under current laws and policies. That difference is attributable largely to proposals from the Administration that affect defense spending and revenues. The President is requesting additional 2007 appropriations of nearly $100 billion for military operations in Iraq and Afghanistan and for other activities related to the war on terrorism, much of which would be spent in 2008; the President is also seeking $145 billion for those activities next year.

The report added that, CBO now projects that, under current policies, the cumulative deficit for the 20082012 period would total $283 billion rather than the $194 billion projected in January (most of that change stems from the extrapolation of additional funding in 2007 for discretionary programs). Deficits would still turn to surpluses in 2012 under the CBO baseline, but the cumulative surplus over the 10-year period would drop to $586 billion (0.3 percent of GDP)down from the $800 billion (0.5 percent of GDP) projected in January.

One source indicated that the release of the CBO report means, Congressional Democrats can begin the serious work of putting together their fiscal 2008 budget.

DTN staff reporters Chris Clayton and Marcia Taylor provided a budget recap and analysis of the CBO report in the broader context of the Farm Bill debate (Farm Bill Budget Proposals Differ).

The DTN writers pointed out that, Budgeting proposals is a lot like asking a hometown umpire if a player is safe at home plate. The White House Office of Management and Budget and the Congressional Budget Office take turns scoring proposals. The CBO Friday released its score of the Bush administrations overall budget proposal. The one line in the report on the farm bill stated it would be $9 billion lower than the baseline, or effectively $64 billion in spending over 10 years (Table 3, page 11 of the report).

The article noted that, Congress also wont know until April what the budget allocations are going to be for the farm bill.

Mark E. Keenum, the new USDA Under Secretary for Farm and Foreign Agricultural Service Programs, briefly addressed budgetary issues in his presentation on Friday at USDAs 2007 Outlook Forum.

In this slide, Dr. Keenum provided a graphical comparison of Commodity Credit Corporation outlays for commodity programs at the time the 2002 Farm Bill was passed, versus the latest CBO estimates from January.

The chart indicates that projected CBO spending for Title I commodity payments will be much lower than originally anticipated in every year from 2007 to 2011. Later, in this slide, Dr Keenum demonstrated how the USDAs Farm Bill proposal compare to estimated expenditures under the 2002 Farm Bill from 2008 to 2012.

Peter Shinn of Brownfield reported on Friday that, USDA Under Secretary Mark Keenum, who took part in a farm bill panel with other USDA under secretaries at the Ag Outlook Forum Friday, told Brownfield the Budget Committees response may well dictate what the Ag Committee does as it formulates the new law.

The budget, as I mentioned in my talk, is going to be one of the driving factors in the next farm bill, Keenum asserted. It always is, and, you know, how much money will be available to the respective House and Senate Ag Committees in the baseline to write the farm bill, he added. And then once they have those budget caps and once theyve been determined, their challenge is to stay within those caps and thats always a difficult process in any farm bill.

II. Farm Bill

An Oxford Analytica summary posted at Forbes on Friday explained that, The Bush administration has outlined a reform-minded agricultural policy program in its draft reauthorization of the 2002 Farm Bill, which could help stimulate global trade liberalization. However, the overrepresentation rural states enjoy in the Senate means it faces an uphill legislative battle.

The summary pointed out that, Reform provisions in President George W. Bushs draft 2007 reauthorization bill would reduce payments to farmers by $10 billion by 2012 and remove support entirely for farmers earning more than $200,000 per year. The administration proposes to sweeten the pill by including $7.8 billion over 10 years in new payments for conservation programs.

However, congressional politics are likely to make the reduction or elimination of farm payments difficult, because their salience is low among the general public but high among farmers and their senators. Under such circumstances, unwarranted public subsidies to private business are hard to remove.

The administrations attempt to reduce federal spending on agriculture is politically plausible because of the buoyancy of many commodity prices, the summary said.

Also on Friday, the American Farm Bureau Federation (AFBF) issued a news release, which stated that, The structure of the 2002 farm bill provides the kind of support farm and ranch families need to preserve their way of life, while providing a safe and secure food supply, according to the American Farm Bureau Federation.

Going forward, American agriculture needs a solid farm program modeled after the current one, said AFBF Chief Economist Bob Young, at an outlook forum organized by the Agriculture Department. The agricultural budget and programs that provide a reliable safety net for Americas farmers must fully consider the growing challenges and needs of the agriculture sector, which is being asked to do more than ever for our nation.

The release added that, Regarding USDAs recently announced proposals for new farm legislation, They do address a number of Farm Bureaus priority issues, including conservation, renewable energy and incentives for farmers just starting out, Young said.

However, funding questions and troublesome issues including means testing and payment limits must be addressed, according to AFBF.

The National Cotton Council (NCC) issued a news release on Friday which stated that, National Cotton Council Chairman John Pucheu, speaking to the Southern Cotton Ginners Association here today, said new farm legislation should be patterned after the basic provisions of the 2002 farm law.

Continuation of an effective marketing loan that is applicable to all production is the foundation of such a farm policy, the Tranquillity, Calif., producer said. A fully functioning marketing loan allows U.S. cotton to remain competitive in domestic and world markets.

The release also stated that, Reiterating the NCCs position that market access is a critical component of Doha negotiations, Pucheu asked, Where is China in the Doha negotiations? What is the U.S. seeking in market access commitments from China? The National Cotton Council has made clear that its support for the ambitious U.S. proposal on reductions in domestic support is predicated on commensurate increases in market access. That means credible clear-cut results on China.

The Secretary stresses the need for new farm policy to be WTO compliant. All of U.S. agriculture agrees that negotiating from a position of strength in the Doha round is preferable to unilateral disarmament. Writing a weak farm bill today that attempts to meet unknown future disciplines that might arise from negotiations that are currently showing little movement does not seem like a sound strategy.

III. Doha

With respect to the WTO and cotton, a Q & A with Pedro de Camargo Neto, was posted at the International Food & Agricultural Trade Policy Council (IPC) webpage on Thursday. Mr. Camargo Neto is the former Secretary of Production and Trade for the Brazilian Ministry of Agriculture and is an IPC Member. The post, The Fight Over Cotton, noted that, In 2002, Brazil initiated a WTO dispute settlement case against the US, claiming that its subsidies for upland cotton were illegal under WTO rules, and unfairly hurt cotton farmers in developing countries. The WTO ruled in favor of Brazil, which was seen as a symbolic victory for developing countries. It remains unclear, however, whether the US has taken sufficient steps necessary to reform its farm programs to bring itself into compliance with international trade rules.

In part, the Q & A noted: Q: In your opinion, what would the ruling mean for domestic subsidy reform in the US, especially in light of the current farm bill debate?

A: The cotton case has had an important influence in the farm bill debate. The US needs legislation that cannot be challenged. The panel results showed numerous points that will need alteration. Unfortunately, groups in the US are still resisting the WTOs decision.

In Europe, things unfolded quite differently. The Community used the sugar panel result to promote essential changes in the European sugar regime. The WTO was used as a political force, and not the opposite. The compliance panel is a reflection of the flawed policies pursued by the US, Congress, USTR, and farm groups. Can anyone believe that countercyclical and marketing loan programs, with the volumes of cash they provided, are correct and allowable under the Uruguay Round Agreement? Why not promote change? Fortunately, the renewable energy and agriculture developments will help us all, and the US should have a better farm program by the end of the year.

Meanwhile, as the Doha negotiations continue, Greg Hitt and Deborah Solomon reported in todays Wall Street Journal that, As angst over the shaky state of the U.S. trade agenda grows, tensions are emerging within President Bushs inner circle over how best to get the stalled Doha round of world trade talks moving.

The chairman of the National Economic Council, presidential friend Allan Hubbard, and national-security adviser Stephen Hadley have privately voiced frustration with the tortured pace of action in the latest stage of comprehensive talks.

The article added that, In one heated meeting among top Bush aides just before Christmas in the Old Executive Office Building, U.S. Trade Representative Susan Schwab opposed the idea of a grand offer. Ms. Schwab, who had seen a similar move by her predecessor flop, pushed instead for quiet negotiations focusing on details to build trust among Dohas participants.

Mr. Bush sided with Ms. Schwab, and has continued to back her. But she is now at risk of being overshadowed some fear undercut by new Treasury Secretary Henry Paulson, who is moving deeper into the public debate on Doha and trade.

In a speech Thursday, Mr. Paulson said increased trade is essential to our growth and cited Doha as especially important for the U.S. He noted that Ms. Schwab, who heads to Europe this week to confer with counterparts there, is working hard to make progress toward a meaningful agreement.

The Journal article also pointed out that, Aides to Ms. Schwab and Mr. Paulson said the two see their roles as complementary, and consult two or three times a week.

Things havent always gone smoothly. In November, Mr. Paulson wrote an op-ed piece on Doha with his British counterpart, Gordon Brown. Ms. Schwab was caught unawares. The article was published the day before her own appearance at the U.S. Chamber of Commerce, where she intended to make a postelection overture to Democrats on trade. Mr. Paulson later apologized to Ms. Schwab, officials said.

The Associated Press reported yesterday that, Ministers from world trade powers tried Sunday to advance stalled talks for a delayed deal to increase global commerce and ease poverty.

The top negotiators of the United States, European Union and India held discussions in London over the weekend, seeking to build on recent contacts by trade officials.

They were expected to fly to Geneva, where the World Trade Organization is based, for more meetings that would also involve Brazil. Those meetings could last till Tuesday.

The A.P. article added that, The United States and the EU face opposition at home to making more concessions in agriculture. Jacques Chirac, the French president and champion of French farmers, criticized Mandelson on Saturday for offering too many concessions and of having a mania to get an agreement completed.

Chirac, whose term expires in two months, told an audience at an annual agricultural fair that France would show rock-hard firmness to defend its interests in WTO negotiations.

A Reuters article from Sunday reported that, Speaking as he toured the farm show, Chirac criticised European Trade Commissioner Peter Mandelson for being too ready to give ground in global trade talks.

Chirac said the Commissioner keeps wanting to give more even though the Americans have not shown any intention of making the slightest concession on farm products and emerging countries have shown no intention at all of making the slightest concession on industrial products or services.

This is just the kind of tough talk farmers want to hear, the article said.

Teruhiko Mano, a professor at Seigakuin University Graduate School, penned an editorial item in todays Japan Times, which stated that, Mutual concessions are essential for the WTO talks to succeed. The biggest problem for Japan, of course, is the extremely high tariffs on imported farm products, mostly notably rice.

Whereas Japanese tariffs on industrial products have dropped to an average of 2.7 percent the lowest in the world its tariff for those who import rice, by WTO standards, exceeds 700 percent. Whats more, the tariff on roots of devils tongue (used to make the popular gelatin konnyaku), is an extraordinarily high 1,700 percent. Needless to say, these high tariffs are designed to protect domestic farmers, but to move the Doha Round forward, Japan needs to consider two things.

First, Japan needs to examine whether its high farm tariffs have helped its farmers improve productivity or raise food self-sufficiency. It is rather difficult to get positive answers. Japan is suffering from a serious shortage of farm workers, which indicates the farming industry is no longer attractive to the younger generation.

Second, the nation should realize it is being forced to pay more for food because of the high tariffs imposed on importers. Consumers in western countries can generally buy grain at international prices, but the Japanese have to buy it at inflated prices because of the hefty tariffs, which are reflected in the prices of basic foodstuffs, such as bread. This is no different than charging a tax, except that it is invisible and has a rate much higher than the 5 percent consumption tax.

IV. Speaker Pelosi: Ethanol- Disaster Aid

Reuters writer Charles Abbott reported on Saturday that, House Speaker Nancy Pelosi promised U.S. farmers billions of dollars in disaster aid, along with research money toward new forms of ethanol, the renewable fuel spurring an economic bonanza for rural America.

Pelosi was the first House of Representatives speaker in decades to speak to a U.S. farm group, according to the National Farmers Union, which invited her to address its annual meeting this weekend.

Mr. Abbott indicated that, Pelosi told the group late on Friday that disaster aid for farmers and ranchers would be included in a pending spending bill. She also said the new Democratic majority in the House would support homegrown biofuels such as ethanol derived from cellulose, found in plant stems, crop residue and wood chips.

(A transcript of Speaker Pelosis prepared comments can be found here).

The article also noted that, As part of a panel discussion, [House Ag Committee Chairman Collin Peterson (D-MN)] said: the House Agriculture Committee was looking at raising loan rates and target prices key factors in deciding subsidy spending.

(For additional coverage of this event, including an audio file of her speech (MP3), see, Pelosi wows NFU with disaster assistance promise, by Brownfields Tom Steever.)

In a blog update posted at the Nation webpage last week (Nancy Pelosi: Farm Girl) John Nichols noted that, But the most important thing about Pelosis appearance at the NFU convention in Orlando will not be what she says. Rather, it will be that the most prominent Democrat in Washington is going out of her way to spend time with farmers and ranchers.

Mr. Nichols stated that, NFU President Tom Buis says [Pelosi] is leading the charge to develop strong rural policy in Congress.

That is high praise, indeed, for a big-city politician like Pelosi. But she has earned it by going out of her way to pay attention to rural America, by focusing on proper policies and, perhaps just as importantly, by showing up for events like the convention of the National Farmers Union.

For a critical look at the idea of additional disaster spending, see The Wasteland, by Stephen Spruiell, which was posted on Friday at National Review Online.

Mr. Spruiell noted that, House Democrats offered a variety of bribes to their colleagues this week in an attempt to dispel opposition to their slow-bleed strategy of attaching troop limitations to the latest war supplemental. The most outrageous of these was a $4-billion package of farm subsidies, the bulk of which would go to farmers in the Midwestern districts of a handful of Blue Dog Democrats like House Agriculture Committee Chair Collin Peterson (D., Minn.).

They havent released the specifics of their draft yet, a GOP House staffer tells National Review Online. But drought relief is expected to be a big part of it, and Collin Peterson is Exhibit A of a Dem being bought off.

Yesterday, Peterson told The Hills Alexander Bolton, I dont think the supplemental will pass if we dont [include the $4 billion], adding that, by failing to pony up the cash, Theyd lose [my vote].

Farm Program Buyouts- An Interview with Prof. David Orden

Posted By Keith Good On March 5, 2007 @ 8:53 am In Farm Bill | Comments Disabled

A recent article in the National Journal (Ending Farm Subsidies), which was written by Bruce Stokes, included the sub-title, Wall Street could finance a government buyout that would give farmers a lump-sum payment in place of future subsidies.

Mr. Stokes explained that, Such a buyout might be voluntary, which would allow farmers to choose whether they prefer the certainty of money in their pocket now or the uncertainty of a future check in a lean crop year from a budget-strapped Uncle Sam. To ease the immediate strain on the federal budget of all those cash payouts, Wall Street firms say they could finance the buyouts by issuing bonds, backed of course by the federal government.

In his article Mr. Stokes quoted David Orden, (pictured at top right) a professor at Virginia Techs Institute for Society, Culture, and Environment and a research fellow at the International Food Policy Research Institute. Dr. Orden is an expert on the buyout issue.

On Friday, March 2nd, I had the chance to sit down and speak with Dr. Orden about the buyout concept. During the course of our conversation, Dr. Orden explained how the buyout principle works, provided examples of how buyout programs have been implemented in the past, and spoke specifically about the U.S. peanut and tobacco buyouts, as well as a dairy buyout implemented in Australia. A related issue regarding the EU sugar program, which has been more of a qualified buyout, was also discussed.

We also talked about the flexibility of the buyout concept and Dr. Orden provided illustrations of how partial buyout programs might work.

To listen to our conversation, just click here (MP3- 15 minutes).

For additional background on the buyout issue, see the paper, Feasibility of Farm Program Buyouts, which was written by Dr. Orden; as well as this summary, which was included in the February 25, 2005 edition of The Webster Agricultural Letter.

In our conversation, Dr. Orden referred to the American Farm Bureaus Making American Agriculture Productive and Profitable (MAAPP) project, for more information on MAAPP, just click here.

Three Farm Bill Pressure Points: Budget, Ethanol & Doha

Posted By Keith Good On March 6, 2007 @ 6:29 am In Farm Bill, Ethanol, Budget, Doha / Trade | Comments Disabled

I. Budget and EthanolII. Doha

I. Budget and Ethanol

Robert Pore, writing on Saturday at the Grand Island Independent Online (Nebraska), reported that, Strong commodity prices lead by corn thats feeding the nations booming ethanol industry could lower the cost of the next farm bill, said Mark Keenum, U.S. Department of Agriculture undersecretary for farm and foreign agricultural services.

Keenum was keynote speaker Thursday at the Governors Ag Conference in Kearney.

The biggest challenge facing Congress and the Bush administration in writing a new farm bill this year is the budget, he said.

The article added that, Keenum said what the Congressional Budget Office has seen over a years time is a change in the market as corn prices began to lift off as more and more ethanol plants came on line.

For CBO, that meant $34 billion less spent of farm programs than they thought would be needed a year ago, he said.

If we had started the farm bill at this point last year, CBOs ag budget would have $34 billion more dollars in it, Keenum said.

Mr. Pore concluded by noting that, The administrations farm bill asked Congress for $87 billion.

On Friday, Senate Agriculture Committee Chairman Tom Harkin, D-Iowa issued a news release which stated that, Senators Tom Harkin (D-IA), Chairman of the Senate Agriculture Committee, and Saxby Chambliss (R-Ga.), Ranking Republican Member on the Senate Agriculture Committee, are urging members of the Senate Budget Committee to increase the agriculture budget for fiscal year 2008. Last night, Harkin and Chambliss sent a letter to Sens. Kent Conrad (D-N.D.) and Judd Gregg (R-N.H.) outlining funding recommendations for important mandatory spending programs such as farm income support, agricultural trade, conservation, nutrition, and renewable energy.

We respectfully request the FY08 Budget Resolution provide additional funds in a reserve account for reauthorization of the farm bill in 2007 in order to enable investment in critical areas of U.S. food, agriculture and rural policy, the Senators said in the letter. We believe that doing so can and should be accomplished in a fiscally responsible fashion, so as to not increase the budget deficit.

And a Congressional Quarterly budget wrap from yesterday noted that, Budget Democrats in both chambers will meet behind closed doors this week as they prepare fiscal 2008 budget plans to be considered publicly next week.

Meanwhile, Jerry Hagstrom reported yesterday at the AgWeek webpage that, Senate Agriculture Committee Chairman Tom Harkin, D-Iowa, encouraged the Senate Budget Committee Feb. 27 to provide more money for federal nutrition programs in the fiscal year 2008 congressional budget resolution and said he would not mind if the budget resolution directed the agriculture committees to spend a certain amount of increased spending only on food stamps and fruits and vegetables for the school lunch program rather than farm spending in general.

Harkins statement that he would accept direction from the budget committee to spend money on nutrition rather than encourage them to give him a free hand in spending any additional funds the committee programs means that its less likely commodity groups such as the National Association of Wheat Growers, the National Corn Growers Association and the American Soybean Association are going to get increased spending for their programs, but that there may be more spending on food stamps and on fruits and vegetables.

Mr. Hagstrom added that, [In a speech to the Food Research & Action Center annual policy conference] Harkin urged anti-hunger advocates to lobby for an increase in the farm bill budget, but added that the budget committee could delineate the money for nutrition. Harkin said he worries that if the resolution provides more money in general for the farm bill, the public will conclude that it will just be a way to get bigger farmers more money.

Harkin added that he doesnt need more money for the commodity title because commodity prices are high but that the nutrition programs need more funding for a variety of reasons, including likely increases in food prices.

The current market climate and its anticipated influence in the likelihood of future price-triggered payments under current law, is not only impacting budgetary allocations, but is also having an influence on farm policy proposals.

Marcia Zarley Taylor reported yesterday at DTNAg.com that, After spirited discussion, delegates to the National Corn Growers Associations Corn Congress approved a farm bill proposal Saturday aimed at reforming the current farm program safety net. The vote caps a two-year effort by NCGA leaders to steer farm program supports away from price triggers alone, and recognize that a growers economic health depends on revenue from both price and actual yields.

Its revenue that pays the bills, said Dave Gillen, a South Dakota farmer and member of the NCGA public policy action team, during the weekend forum here in Tampa.

Actual language approved by delegates simply stated that the 2007 farm bill commodity title for corn and potentially other commodities should include a county-based, counter-cyclical, revenue program integrated with crop insurance. Any safety net must also be market sensitive.

The DTN article indicated that, The Congressional Budget Office (CBO) estimates that no loan deficiency payments are likely to be owed to corn, wheat and soybean growers over the next few years, but cotton could collect $2 billion to $3 billion annually in marketing loan payments. Although the CBO issued its latest farm program budget ceilings this weekend, how much Congress will be able to spend on future farm programs is still in flux. However, NCGA fears escalating commodity prices and other assumptions are shrinking the baseline for spending about 40 percent below budgets for the 2002 Farm Act.

Higher prices for feed grains and protein are simultaneously having an adverse impact on livestock producers. And as Des Moines Register reporter Philip Brasher noted in todays paper, livestock producers are not always able to pass along higher costs to consumers.

The Register article explained that, Consumers looking for a bargain at the supermarket may want to check the pork chops or tenderloin.

That will make little sense to shoppers who have heard that sharp increases in corn and soybean prices, driven by the nations booming ethanol industry, will make food cost more.

Livestock producers rely on corn and soybeans to feed their animals, but farms and processors cannot easily pass their higher costs to consumers. In fact, government economists say that prices for pork, beef and turkey will actually drop this year despite the higher grain prices that are squeezing both farmers and meatpackers. The reason: There are relatively large supplies of all three types of meat.

Mr. Brasher reported that, The price of pork is expected to average around $2.75 per pound in 2007, down from last years average of $2.81.

A separate article written by Robert Pore, that was posted on Sunday at the Grand Island Independent webpage, included this summary of the current environment, Those higher commodity prices will impact how lawmakers write the new farm bill, especially with less budget money available to pay for government farm programs.

While the government is spending less money because of higher market prices, [Rep. Adrian Smith, R-Neb] said the administrations farm bill proposal calls for spending more than the initial budget outlay for the new farm bill of $82 billion.

He wants a farm bill thats sustainable and responsible, that builds markets overseas and creates a safe and affordable food supply domestically.

Smith, a member of the agriculture committee, said there will be a subcommittee meeting this week examining the impact higher feed costs because of ethanol demand are having on the livestock industry.

Thats a key issue for Smith, whose 3rd Congressional District is not only the largest cow/calf congressional district nationally, but also the nations leading ethanol-producing district.

(I had a chance to speak with Rep. Smith last month about the Farm Bill, to listen to our conversation, just click here.)

It is a generally accepted proposition that higher market prices are being driven by the increased use of crops for energy production. A key factor in assessing the strength and potential duration of this increased use is the projected profitability of corn ethanol production. Two key variables that play into the long-term profitability of corn-based ethanol production are federal regulations and the price of oil.

With respect to federal legislation, Bob Meyer of Brownfield noted yesterday that, The Energy Information Administration says ethanol production in the U.S. hit a record 4.86 billion gallons in 2006. That is a 24.3% increase over 2005. Demand for the fuel surged 33% to 5.4 billion gallons, also a record. Imports of 653 million gallons made up the difference between production and demand. Two-thirds of the imports came from Brazil.

While U.S. markets used 653 million gallons of imported ethanol, Dow Jones News reported yesterday (via the DTN Ethanol Center) that, U.S. President George W. Bush wont succumb to pressure to reduce tariffs on imported ethanol when he meets later this week with Brazilian President Luiz Inacio Lula da Silva.

The tariff is not under negotiation and we have no intention to propose altering the tariff, thats obviously a Congressional matter, National Security Adviser Stephen Hadley told reporters Monday.

The Dow Jones article stated that, Ethanol will be one of the top agenda items during the meeting with Lula, who says he will push Bush to slash import tariffs. The $0.54 per gallon tariff effectively blocks Brazilian ethanol exports to the U.S.

Richard Lapper, writing earlier this week at the Financial Times webpage noted that, President George W. Bush lands in So Paulo on Thursday the first stop in a week-long trip that also includes Uruguay, Colombia, Guatemala and Mexico with a plan for Brazil and the US to jointly promote ethanol and other green fuels.

The FT item added that, As Richard Lugar, the chairman of the US Senates Foreign Relations committee, and Jos Miguel Insulza, secretary general of the Organisation of American States, suggested in an interesting piece in the Miami Herald, the two countries could usefully promote a worldwide programme of investment, training and research to build biofuels production capabilities.

Such a programme might be linked to the International Biofuels Forum - a broader international initiative designed to promote green fuel, involving China, the EU, South Africa and India, as well as the the US and Brazil. In addition, though, if a global market in ethanol is to become a reality, it must make sense for the US to start reducing the tariff barriers that limit Brazilian exports to the US.

And with respect to crude oil prices, Myra P. Saefong & Ciara Linnane reported in yesterdays Energy Blog (The Wall Street Journal), that, Crude futures tumbled to less than $60 a barrel as another day of sharp losses on Asian and European stock markets fueled concerns about an economic slowdown that would reduce energy demand.

In a related article, Kevin Morrison reported in yesterdays Financial Times that, Consumers will have to pay more for food in coming years as demand from biofuel manufacturers has pushed up the prices of corn and other grains for the long term, a senior economist of the US government has warned.

Keith Collins, chief economist at the US department of agriculture, also said grain prices could be very volatile this year because of low global grain stockpiles.

The FT article stated that, However, Mr Collins said consumers would be able to withstand the effect of higher food prices.

Look at what happened to the price of oil - it has gone up to $60 a barrel from $20, but the world has coped. I see a similar adjustment for food, he said.

II. DohaJohn Zarocostas reported in yesterdays International Herald Tribune that, More than 60 small and poor nations, many from Africa, voiced fears Monday that their concerns in global trade talks could be bulldozed as the big trading powers sought to overcome roadblocks on their own.

Ministers from the United States, the European Union, Brazil and India on Monday wrapped up three days of talks on the current, Doha round of trade negotiations, which were revived a month ago but have yet to much fresh progress. No breakthroughs were announced, but envoys described the sessions as constructive.

Meanwhile, a senior African trade diplomat said his group feared that the so-called Group of 4 might come up with a grand package and present it as a fait accompli, and that their concerns over cotton subsidies, aid for trade and other issues would be bulldozed in the process.

The Associated Press reported yesterday that, Struggling global trade talks are far from a breakthrough, an American official said Monday, as key trading powers met amid growing concern in the World Trade Organization and reported tensions within the Bush administration over the slow pace of negotiations.

U.S. Trade Representative Susan Schwab refused to comment after a meeting with WTO chief Pascal Lamy, but her spokesman, Sean Spicer, said the three days of discussions between top U.S., EU, Brazilian and Indian officials in London and Geneva were aimed primarily at clarifying the positions of the four countries largely seen as the main brokers of any global trade deal.

The ministerial talks were held as countries show signs of increasing impatience with the quiet diplomacy that has guided the WTOs Doha trade round since an acrimonious collapse last July.

The AP article noted that, Spicer sought to alleviate fears that the U.S. and other major powers would attempt to bulldoze smaller nations into a new trade pact they were negotiating. We are not going to come to a breakthrough and say to everyone, Here is the deal, take it.

The sober assessment of the talks, which have suffered from numerous delays and missed deadlines, appears at odds with optimistic statements from a number of world leaders over recent weeks.

Dow Jones writer Gerald Jeffris reported yesterday (Brazil, U.S. Look For Fuels Cooperation At Bush-Lula Talks) that, According to local press reports, Bush recently told the Brazilian Ambassador to Washington, Antonio Patriota, that the time is now for advancing the WTOs Doha round.

Realistically, however, not many immediate advances are expected from this weeks talks, as the Bush administration is serving out its final two years with both the House and Senate controlled by Democrats, and as the two countries domestic agendas on broader trade and investment issues are still far from aligned.

Progress on the Doha round or any free trade agreement is out of the question because of the agricultural subsidies in the U.S. and Europe, and the fact that Brazil and others arent going to give way on intellectual property rights and investment issues that the U.S. and the E.U. want as a counterpoint, noted [Riordan Roett, Director of Western Hemisphere and Latin American Studies at Johns Hopkins University.]

FAPRI Baseline Released

Posted By Keith Good On March 7, 2007 @ 6:17 am In Farm Bill, Ethanol, Budget, Doha / Trade | Comments Disabled

I. FAPRI BaselineII. EthanolIII. DohaIV. Farm Bill

I. FAPRI Baseline

Yesterday, the Food and Agricultural Policy Research Institute (FAPRI) issued a news release, which stated that, High corn prices are expected to bring major shifts in crop production the next two years, bringing an additional 8.4 million acres into corn in 2007.

Ethanol, based on corn, has become a driving force in the 2007 agricultural economic baseline prepared for the U.S. Congress by the Food and Agricultural Policy Research Institute (FAPRI).

Expected corn use for ethanol almost doubles in the 2007 crop year from the 2005 crop and exceeds 4 billion bushels or 32 percent of the nations corn crop by 2009.

(Graph from The Wall Street Journal Online).

Increasing ethanol production drives the corn price from a $2 per bushel average in the two previous crop years to slightly above $3 per bushel in every year of the 10-year baseline.

The news release added that, The FAPRI baseline was prepared by think tanks at the University of Missouri-Columbia and Iowa State University, Ames. MU maintains computer models of the U.S. agricultural economy. ISU tracks global markets. Economists at other universities participate.

So much depends on the price of petroleum, Westhoff said. MU FAPRI uses a baseline assumption that the oil price falls to $50 per barrel in 2016. Forecasts on oil, interest rates and other macroeconomics come from the private forecasting firm Global Insight.

FAPRI assumes normal weather and continuation of present farm policies, including current biofuel incentives through the 10-year baseline.

And with respect to the federal budget picture, FAPRI indicated that, Federal spending for farm programs is lowered by higher grain prices. Direct payments, counter-cyclical payments and marketing loans peaked at $16 billion in the 2005 crop year. Those same payments total $7.7 billion for the current marketing year. Payments drop to $6.7 billion by the end of the baseline in 2016, with direct payments accounting for $5.3 billion.

The baseline, which will be used to analyze the 2007 Farm Bill, has been given to the Senate and House agricultural committees and U.S. Department of Agriculture.

The full report of the FAPRI U.S. Baseline Briefing Book is available on the MU FAPRI website.

Philip Brasher, writing yesterday at the Des Moines Register Online, reported that, High corn prices could wipe out much of the profit in the ethanol industry for years to come, economists say.

Net operating returns for the ethanol industry will drop to 28 cents a gallon this year, down from 61 cents last year, according to a report prepared for Congress by the University of Missouris Food and Agricultural Policy Research Institute.

The economists see the operating margin slipping eventually to 19 cents a gallon by 2012. Plants need to make about 20 cents a gallon to cover capital costs, so the decline in margins will discourage construction of additional facilities, said Pat Westhoff, the institutes program director.

That slows investment dramatically, he said.

But a lot depends however on what happens to the price of oil, Westhoff said.

Mr. Brasher added that, The report sees U.S. ethanol production rising sharply in the next couple of years, as plants now under construction come on line, and then expanding relatively slowly from 2010 through 2016.

DTN writer Chris Clayton reported yesterday that, University agricultural economists from around the country are projecting that ethanol use will require 3.1 billion bushels of the 2007 corn crop, which is about equal to what USDA is projecting for ethanol use from next falls crop.

Mr. Clayton noted that, Right now, USDA projects ethanol will use 3.2 billion bushels of the 2007 corn crop. USDA projects that ethanol development or production could slow at some plants if corn prices continue to stay at record levels unless oil prices also stay higher. They project corn usage for ethanol will top 4 billion bushels by 2009.

Concluding, the DTN article stated that, Current tax policies that support biofuel are slated to expire in 2008 and 2010, said Pat Westhoff, a FAPRI analyst. If the credits expire, the results could be sharply lower biofuel production, corn and soy oil demand, and crop prices.

While biofuel could keep corn prices high, the demand for fuel will have a negative financial impact on livestock, according to FAPRI. Cash receipts for cattle sales will fall about $2.8 billion over the next three years to about $47.9 billion nationally. Besides livestock producers receiving less for their livestock, they will also pay more for their feedstocks.

A summary of the report posted yesterday at AgWeb.com indicated that, While corn gains acres, soybeans give up the most, falling to 70.5 million acres in 2007 from 75.5 million acres in 2006. Wheat acres, most of which were planted this past fall, increased to 60.1 million acres in 2007, but are expected to drop in following years to 57 million acres by 2016.

Regarding farm income, this summary pointed out that, High crop prices increase net income for grain farmers; higher feed costs cut profits of livestock feeders.

Overall, net farm income dropped $26 billion dollars in 2006 from a record high of $85 billion in 2004, with higher input costs largely responsible. Net farm income could rise to $7 billion in 2007 to $66 billion and could remain above $60 billion in later years.

Cash receipts for cattle and calves reached a record $50.7 billion in 2006, but are expected to decline to $47.9 billion by 2010.

As more expensive corn increased the cost of feeding cattle, feedlots bid down feeder cattle prices, said Scott Brown, MU FAPRI livestock analyst. This trend continues through the baseline, as feed costs remain high.

Nonetheless, Food cost increases remain moderate in spite of higher grain prices. Annual growth in the food Consumer Price Index will average near 2 percent long term, near the general inflation rate, Brown said.

To listen to an audio summary of the FAPRI report (4:20 min.), just click on this Brownfield webpage.II. Ethanol

In other ethanol related news, Antonio Regalado reported in todays Wall Street Journal (from Sao Paulo, Brazil) that, President Bush is scheduled to arrive in Brazil tomorrow to discuss a possible alliance on ethanol fuel, but investors arent waiting for a pact: They are already pouring money into new ethanol mills and sugar-cane fields here to meet growing domestic demand for the biofuel and in the hopes that exports will boom, too.

The U.S. market remains largely off-limits to Brazil because of tariffs and quotas that protect the U.S. ethanol industry, which is based on corn rather than sugar. But Japan and other energy-poor nations in Europe are already looking to Latin Americas largest country for ethanol.

The Journal added that, Brazil is proof that the economics of a renewable fuel is very competitive, said Neil Koehler, chief executive officer of Pacific Ethanol, a U.S.-based corn-ethanol producer. Pacific is focused on supplying the U.S. market, but because Brazilian ethanol is less expensive, Mr. Koehler says it is likely the country will be first to conquer new markets such as Japan, which dont make their own ethanol and dont have import tariffs.

In addition, the article stated that, Interest in the export market began to grow rapidly last year, as Mr. Bush began putting political weight behind ethanol. There are a huge number of investors, funds, traders, oil companies, commodities companies, all considering entering the market, said Jos Luiz Olivrio, senior technology and development vice president at Dedini SA, a major Brazilian supplier of crushers and distillers used in making ethanol from sugar cane.

Officials from both countries say the contemplated U.S.-Brazil deal on biofuel is likely to include the creation of a body to set technical standards and support for sugar-cane production elsewhere in Latin America. Such steps are needed to create a robust international market for ethanol, which isnt yet traded easily like soy or other commodities.

Meanwhile, Kevin Morrison and Doug Cameron (Cargill chief questions biofuel subsidies) reported earlier this week in the Financial Times that, The incoming chief executive of Cargill, the worlds largest agricultural company by revenues, has questioned the system of tax breaks and subsidies used to increase biofuel production in the US amid concerns about the inflationary impact on global food prices.

The FT article stated that, Tax breaks and pledges to boost government research grants have seen US production of corn-based ethanol triple over the past three years, inflating prices of the crop and providing healthy profits for producers of the gasoline additive.

Producers in the US continue to receive a 52-cent-a-gallon subsidy for ethanol, while cheaper-priced imports, notably from Brazil, have been discouraged by tariffs.

Ethanol is economic at $4 [a bushel] corn, without any tax breaks, said Greg Page, who is due to replace Warren Staley as Cargills chief executive officer in June.

The issue of government support for the fast-growing biofuels sector is particularly sensitive because of internal disagreements within the US agricultural sector and efforts to reform subsidies as part of a new domestic farm bill, which are in turn linked to reviving the Doha round of global trade talks.

III. Doha

With respect to the Doha talks, an item posted today at the Business Standard webpage reported that, Days after the United States alleged that India was the sticking point in the Doha round of WTO trade talks, the European Union (EU) today backed India.

India and the EU are on the same line on agriculture, though have not agreed on all the points, said EU Agriculture Commissioner Mariann Fischer Boel.

US Trade Representative Susan Schwab, in a recent article, had blamed Indias stand on agriculture as the stumbling block in the Doha round.

Boel rubbished Schwabs claim that the US, the EU and Brazil had agreed on many points in the Doha round and blamed domestic agricultural subsidies given by the US for the stalemate.

The article stated that, Urging the US to be more flexible over subsidies, Boel hoped the final version of the proposed US Farm Bill would rein in domestic farm subsidies.

The Associated Press reported yesterday that, Mexican officials Tuesday told U.S. Agriculture Secretary Mike Johanns their country will join Canadas trade complaint against U.S. corn subsidies if the World Trade Organization orders a formal investigation of the issue.

Mexican Economy Secretary Eduardo Sojo said his country would join the complaint - now supported by the E.U., Australia, Argentina and Brazil - if the WTO orders the establishment of a dispute settlement panel. That could happen if the dispute isnt worked out during a consultation period.

IV. Farm Bill

Jessica Holzer reported yesterday at The Hill webpage that, The farm lobby, higher-education advocates, veterans organizations and a host of other groups are pressing their cases with budget committee staffers for increased funding as Democratic lawmakers look to release their spending blueprint as early as next week.

Ms. Holzer added that, Under pay-go rules, which were adopted by the House earlier this year and embraced by several committee chairmen in the Senate, any spending increase or tax cut must be deficit-neutral. So advocacy groups are trying to convince budget staffers that their causes should be exempted from pay-go. Others are coming hat in hand with suggestions for revenue offsets.

Its tough right now. But we will continue our efforts to ask for an increase, Dana Brooks, who is overseeing the lobbying for the U.S. Farm Bureau on the farm bill, said. She believes any increase in agriculture spending merits waiving the pay-go rules.

As the budget picture takes shape, some groups are seeking additional resource allocations in the Farm Bill.

Michael Doyle reported in todays Sacramento Bee that, Lawmakers largely left organic foods alone the last time they wrote a farm bill. Merced County dairy farmer Tony Azevedo wants to change that.

Azevedo and his allies seek tens of millions of dollars for research. They want help with crop insurance, and they crave protection in case their crops become contaminated.

Our goal is to give all farms in the United States a chance to become part of organic (farming), Azevedo said Tuesday.

The Bee article indicated that, This week, he and other organic farmers are hand-sowing their agenda around Capitol Hill. Its an ambitious and politically challenging wish list being shared with the likes of Rep. Dennis Cardoza, D-Atwater.

Near the articles conclusion, Mr. Doyle explained that, Lawmakers are also cautioning that they wont have as much money to spend as they would like, making it harder to designate dollars for certain growers. The organic farmers recommendations have a hefty five-year price tag of at least $475 million. They also pose some potential conflicts with political powerful entities, such as the processors that the growers literature refers to as large corporate buyers.

The one thing I wont tolerate is pitting one sector of agriculture against another, Cardoza said.

In related editorial opinion, Gene Duvernoy and W. Jay Gordon penned an Op-Ed which was posted yesterday at the Seattle Post-Intelligencer Online (Take a new approach to farm bill). The editorial stated that, American Farmland Trust has proposed valuable farm bill reforms, including: a substantial increase in funding to protect farmland from development; more help for farmers to improve their conservation stewardship; a new fund targeting challenging regional environmental problems such as salmon recovery; support for innovative farm business opportunities, new value-added products, and for farm-grown, cleaner, more sustainable fuels and energy, and a phased-in transition to a revenue-insurance program for commodity farmers that will reduce the extraordinary risks inherent in farming and could be more beneficial for commodity farmers than their current system.

Several bills containing such positive reforms are circulating in Congress. This new approach spreads the benefits more fairly among farmers and more evenly across our nation while providing consumers with healthier food and energy choices, and rewarding conservation and good stewardship.

Its high time federal farm policy helped all farmers succeed in producing safe, affordable food, while also providing the environmental and quality of life benefits we all treasure. Our Washington congressional delegation can help lead the way by supporting a new approach to the farm bill.Jaclyn Houghton reported recently at the EnidNews.com webpage (Oklahoma) that, U.S. Rep. Frank Lucas, R-Okla., represents many of the farm and ranching communities in the 3rd Congressional District and also serves on agriculture committees in the U.S. House. Lucas, a western Oklahoma farmer and rancher, said the country is running in a deficit this year and there more than likely will be program cuts.

There are three big areas the farm bill addresses: commodities, conservation efforts and feeding programs like food stamps. He said lawmakers from urban areas are more focused on the feeding programs, suburbanites want more conservation of the air and water quality and wildlife and people in rural areas, where most farming occurs, want to protect farm products by assisting farmers.

He said many of his farming constituents would prefer to keep most of the current farm bill that was written in 2002.

But he said since Democrats have gained the majority in the House and Senate there may be a push for changes to the bill. He foresees cuts to the commodity programs and the growth of conservation efforts.

Meanwhile, Rob Hotakainen reported on another regional / commodity angle in the Farm Bill debate.

In an article that was posted earlier this week at the Minneapolis Star Tribune webpage (More clout for corn in Washington), Mr. Hotakainen noted that, After years of dominating the farm committees in Congress, Southern lawmakers find themselves taking a back seat to those from the Midwest, and corn and soybean fa