Chris Clayton, writing yesterday at the DTN Ag Policy Blog, reported that, “The top congressman on agriculture issues suggested Wednesday that the Bush administration is willing to cut commodity programs as much as 80 percent from current levels to get a global trade deal.

“Criticism of the White House strategy on trade negotiations was a focus at a forum with Democratic North Dakota Sen. Kent Conrad and House Agriculture Committee Chairman Collin Peterson, D-Minn.

“One of the complaints by Peterson is that the administration is willing to demand more cuts of farm programs for the sake of a deal in the World Trade Organization’s Doha Round Talks. Peterson noted the House bill that passed in July is compliant with the current WTO parameters ‘and the 60 percent give up’ offered by the administration in October 2005.”

Mr. Clayton added that, “Peterson said talks behind-the-scenes appear to make the case that the Bush administration is willing to offer even steeper program cuts. Peterson said that is why the administration has tried to undermine the House bill.

“‘They were trying to get me to pass a farm bill that would bail them out of this trade mess they are in,’ he said. ‘But really what is going on here is they are negotiating with themselves.’

“Conrad ripped the Bush administration for its proposal in October 2005 to cut farm payments up to 60 percent. Conrad said it was a failed negotiating strategy akin to going to a car dealer and agreeing to pay sticker price right off the bat rather than holding the line on negotiations. It caused Doha Round talks to fail because other countries then just began demanding more from the U.S., Conrad said.”

The DTN item also explained that, “While farm-program payments over the past five years have averaged close to $16 billion, the U.S. has a $19.1 billion cap under current WTO agreements. A lot of these numbers, though, come down to semantics of what is defined as amber, blue or green-box payments for farmers under WTO rules. The U.S. and trading partners have disputes on just how program payments should be classified.”

With respect to federal farm commodity spending levels, a recent Congressional Research Service (CRS) report (“Farm Bill Budget and Costs: 2002 vs. 2007” (July 17, 2007) indicated that for fiscal years 2002 through 2007, the average annual cost of “Farm Commodity Programs” was just over $12 billion. Adding in “Conservation” and “Exports” took the total annual average up to about $15.5 billion (Table 1, page two).

With respect to future spending, the CRS report stated that, “[The Congressional Budget Office] CBO projects that total farm support (commodities, conservation, and trade) spending under current law over the next six years will be $70.9 billion, which is nearly $22 billion less than the amount actually spent over the last six years (FY2002-FY2007). This lower estimate is driven primarily by projections for sustained high commodity prices for the foreseeable future. The $22 billion reduction consists of about $30.5 billion in reduced commodity spending, but about $8.2 billion in increased conservation spending, and $357 million in increased export spending. In contrast, spending for food stamps increases by about $25.7 billion over the six-year period” (page four).

From fiscal year 2008-2013, the CRS report noted that CBO estimates federal spending for “Farm Commodity Programs” to average around $7 billion annually, while conservation programs will average around $4.5 billion (Table 3, page four).

When compared to projected federal spending for domestic biofuels programs, the CBO estimates for commodity subsidies might appear to be less significant.

As Dan Morgan noted in an article from June, “As President Bush and congressional leaders rally support for their ambitious biofuel proposals, one ingredient is often left unstated: the cost.

“Bush and members of Congress stress energy independence and environmental benefits of federal requirements for a massive increase in the use of biofuels in motor vehicles.But so far they have muted discussion of the prosaic details of how to pay for the subsidies and other incentives seen as crucial for meeting the new biofuels targets.

“If the current tax credits, grants and loan guarantees are extended, the package would cost taxpayers $140 billion more over the next 15 years. New proposals under consideration in Congress could raise that tab to $205 billion.”

Mr. Morgan’s article also noted that, “Loan guarantees for cellulosic ethanol plants could cost $10.8 billion, Energy Department research and development programs could add $6.5 billion, an extension of the $1-a-gallon biodiesel tax credit (which expires in 2008) would cost $10.2 billion and ethanol-related corn subsidies could total $14 billion, according to estimates by a former Office of Management and Budget expert. Grants to help build infrastructure capable of handling such a large volume of ethanol could cost $3.35 billion.

“Hardly any of those costs would be offset by less spending on agricultural subsidies. Keith Collins, the Agriculture Department’s chief economist,said ethanol-driven increases in crop prices lowered farm-program costs by $10 billion over the past five years. But there isn’t much more to save.”

A recent Dow Jones News article implied that this level of domestic support for biofuels has not gone unnoticed by international trading partners.

The article stated that, “In July, Brazil formally filed a plea at the World Trade Organization, charging the U.S. government has handed out billions of extra dollars to its hometown farmers in the grains and oilseed sectors from the years of 1999 to 2005, contrary to WTO rules.

“However, a big question in recent weeks has been whether Brazil, the world’s leading ethanol exporter, would try to tackle U.S. subsidies for ethanol in its newest case, or leave the issue of biofuels for a future date.”

Meanwhile, Associated Press writer Amy Lorentzen provided this anecdotal illustration of how political support for corn-based ethanol is playing out in the U.S. in an article from today.

Ms. Lorentzen reported that, “Don’t expect to hear much talk about farming from the presidential candidates who regularly tour Iowa, one of the nation’s premier agriculture states.

“Instead, prepare for three words: I love ethanol.

“At a time when demand for the corn-based fuel is soaring, support for ethanol among candidates is nearly unanimous and has largely crowded out talk of other agriculture-related issues.”

The AP article stated that, “‘They pay lip service (to agriculture), and then they’re pro-ethanol, and I think that’s enough,’ said Bruce Babcock, director of the Center for Agricultural and Rural Development at Iowa State University. He adds that a pro-ethanol stance translates to farm support ‘because pro-ethanol means high prices for corn and soybeans here.’” (Note: Which further translates into lower Title I price-triggered federal farm payments).

Later, the AP article noted that, “Many in Iowa are pushing Congress to raise the amount of renewable fuel that must be used in the nation’s fuel supply. And there’s interest in what presidential candidates would do in 2010, when a 51-cent-per-gallon of ethanol tax break is up for review.

“‘Energy policy is arguably more important to Iowa farmers than commodity policy,’ Babcock said.”

Some suggest that energy policy is certainly having a trickle down impact on the value of farm real estate.

Elizabeth Williams, writing yesterday at DTN (link requires subscription), noted that, “‘The Midwest farmland market is ethanol driven right now,’ explained Murray Wise with Westchester Group based in Champaign, Ill. ‘That’s why you’re seeing greater value increases in the western half of the Corn Belt. Urban sprawl has slowed down. The title wave of 1031 land exchanges we saw from 2002-2005 has been dramatically reduced.’

“‘Farmers are the driving force of this market right now, but there is a staggering amount of pure investment money looking at agricultural land as a very safe opportunity,’ said Wise.”

With respect to biofuel trade developments, Tim Annett reported yesterday at The Energy Roundup Blog (The Wall Street Journal) that, “Monthly U.S. imports of ethanol in June rose to 820,000 barrels, up 24% compared to May, according to preliminary company level import data supplied by the federal Energy Information Administration. Imports of the plant-derived gasoline additive averaged about 27,333 barrels a day over 30 days in June. There were 14 shipments in June, two more than in May.

“Brazil, the largest exporter in the month, increased exports by about 87% in June to 488,000 barrels in seven shipments, from a total of 261,000 barrels in three shipments in May. The Brazilian material made way to ports in New Jersey, Massachusetts, Connecticut and Pennsylvania.”

However, Dow Jones writer Bernd Radowitz reported yesterday that, “Brazil’s state-run oil firm Petroleo Brasileiro SA (PBR), or Petrobras, expects to export only 500 million liters of ethanol in 2008, Downstream Director Roberto Costa said in a presentation Wednesday.

“That is less than the 850 million liters the company had targeted for this year. The company, however, continues with a 4.75-billion-liter export target for 2012.”

The article noted that, “In its investment plan, Petrobras singles out Japan, South Korea, Taiwan, the European Union and the U.S. as priority markets for its ethanol exports.

“Of the $1.5 billion Petrobras has earmarked for investments in biofuels from 2008 to 2012, 46% will go into the construction of pipelines. The company plans to build at least two ethanol-only pipelines to transport the biofuel from producing areas in the interior of Brazil to Atlantic coast ports.”

As farm policy observers know, technological changes in biofuels production regarding the economic feasibility of cellulosic ethanol production from non-corn feedstocks could alter the market price– federal commodity payment– trade matrix.

With respect to “second generation” biofuel technology, Reuters writer Inae Riveras reported this week that, “Brazil’s state-run oil company Petrobras said on Tuesday it expects to reach large scale cellulosic ethanol production in 2015, with the first plant entering operations as early as 2011.

“‘I believe in 2015 this technology would be arriving at a commercial level,’ Petrobras’ new projects manager, Gilberto Ribeiro de Carvalho, said after a presentation at the Brazilian Agribusiness Association conference.”

***

In a broader look at the Doha round of WTO trade talks, Reuters writer Doug Palmer reported yesterday that, “The last chance for a world trade deal could slip away in the next few months unless India, Brazil and other advanced developing countries offer meaningful commitments to open their market to more foreign goods, U.S. private sector experts said on Tuesday.

“‘What is badly needed is political leadership in key capitals to get the job done this fall. Absent such leadership, my fear is the round will go into a deep freeze for a few years,’ said Mary Irace, vice president for trade and export finance at the National Foreign Trade Council.

“Negotiators will return to Geneva next week to dig into agricultural issues that have been the main stumbling block since the talks were launched in November 2001 in Doha, Qatar.”

The article added that, “One big issue for U.S. business is how much advanced developing countries would be required to open their markets in exchange for cuts in rich country farm subsidies and in tariffs on both farm and manufactured goods.”

The Reuters article concluded with this analysis; “At this point in the negotiations the United States has two options: ‘Accept an imperfect compromise, or accept a more costly failure that could damage U.S. economic interests and the international economic system,’ said Jeffrey Schott of the Peterson Institute for International Economics.

“‘When those are the options you have, then you go for the imperfect compromise,’ but the deal still has to generate enough new U.S. export opportunities to make it politically viable in Congress, Schott said.

“With U.S. lawmakers already losing interest in the talks and the 2008 presidential campaign heating up, negotiators must draw on the draft texts to stitch together the key elements of a deal over the next two months, Schott said.

“‘If countries continue to play the blame game and maintain their past positions, nothing will happen and the window of opportunity for crafting an imperfect compromise will close. That will be it. The round will go into deep hibernation,’ Schott said.”

And Reuters writer Jonathan Lynn reported earlier this week that, “Many developing countries are unwilling to cut their import tariffs — opening their markets to developed and other developing economies, unless the United States is flexible about its farm subsidies, which they say distort farm trade.

“But Washington wants better access for its farm products in developing countries, and is therefore keen to learn which products will be continue to be protected, before it makes a move.

“Clarifying what goes on these lists of special and sensitive products is likely to be an early focus for the Geneva talks, officials said.

“There are other complications with agriculture. Officials from developed and developing countries alike expressed concern at the U.S. farm bill working its way through congress. This sets spending and support for American farmers for the next five years, but conflicts with efforts at the WTO to reduce subsidies.”

Keith Good