Reuters news reported today that, “Rising prices for wheat, soybeans and other commodities should propel U.S. net farm income to a record $87.5 billion this year, up sharply from about $59 billion in 2006, the U.S. Department of Agriculture forecast Thursday.

“‘The higher prices available to U.S. farmers are principally resulting from strong demand from the domestic biofuels industry and from foreign buyers. As a result, farmers have lots of production to sell at high prices,’ the USDA said in its farm income report.

“The surge in demand for U.S. crops is partly the result of low rainfall in other countries, rising international consumption and a weak U.S. dollar that has boosted ‘farm-level prices to a level that more than offsets the increase in production costs.’”

After noting that, “Receipts from corn and soybeans — the top two cash crops — are expected to rise, with corn receipts reaching nearly $33 billion and soybeans $21 billion;” the Reuters article indicated that, “Production costs also are soaring. Total production expenses are forecast to increase $21.7 billion to a record $254.2 billion in 2007, the result of higher feed, labor and fertilizer costs.”

More specifically, the Economic Research Service (ERS) indicated at this webpage that, “The average household income—from farm and off-farm sources—of principal farm operators was forecast to be up 7.7 percent in 2007 to $83,622.”

ERS also noted that, “Farm income is forecast to increase by more than 30 percent between 2006 and 2007, versus 5 percent for off-farm income. Only the households that operate the largest 8 percent of farms (sales of $250,000 or more) have an average farm income greater than off-farm income in a typical year, and these commercial farms posted the largest income gains of all farm sizes in 2007.”

For an excellent graphical breakdown of income by commodity specialization, see this graph that was included in yesterday’s update.

For more complete details regarding these updated projections, see this ERS briefing room, “Farm Income and Costs: 2007 Farm Sector Income Forecast.”

With respect to corn, ERS stated that, “Cash receipts for corn have benefited from the higher farmgate price in 2007 (up over a dollar per bushel from 2006 to around $3.40). Rising corn prices are the result of continual food and feed demand and expanding ethanol demand. Ethanol refineries in the United States have the capacity to produce more than 7 billion gallons per year and, as early as 2010, are expected to add 6.5 billion gallons of annual productive capacity through new construction and expansion of existing facilities. However, prices at ethanol plants in Iowa and Nebraska have fallen around 75 cents per gallon since Spring, reducing profitability for ethanol producers. USDA recently reported that a 40 million gallon Midwest ethanol plant, receiving the late September price of $1.52 per gallon for ethanol and paying $3 per bushel of corn, was earning 17 cents per gallon above variable cost of production and 3 cents below total cost of production. The forecast for corn exports in 2007 is up about 11 percent from last year. An estimated 93.6 million acres of corn was planted in 2007, the largest area planted to corn in over 60 years. Favorable weather in the major corn producing States will result in a record 13.2 billion bushels, up 2.7 billion bushels from last year.”

More specifically with respect to wheat, ERS noted that, “Wheat prices, which started to rise in late 2006 and continued through 2007, are expected to average a recordof nearly $5.70 per bushel in 2007. This year’s domestic ending stocks could be the lowest since 1948/49. Even with current high prices, U.S. wheat exports are forecast to rise in 2007 by nearly 27 percent, with a number of importers removing import restrictions and/or subsidizing consumption. Global wheat production in 2007 is projected to lag behind world demand due to a U.S. freeze and heavy rains in the Plains, Canadian planting delays and hot summer, Australian drought, EU-27 rains in the West and drought in the East, and Ukraine/Russia drought. As a result, global ending stocks are expected to fall to their lowest level since 1975/76.”

Later, ERS highlighted federal government payment levels, stating that, “Direct government payments are expected to total $12.1 billion in 2007, down from the $15.8 billion paid out in 2006. This level would be 26 percent below the previous 5-year average. Direct payments under the Direct and Countercyclical Program (DCP) in 2007 are forecast at $5.26 billion, less than a 5-percent increase from 2006. Direct payment rates are fixed in legislation and are not affected by the level of program crop prices.”

“Countercyclical payments are forecast to decrease from $4.0 billion in 2006 to $1.18 billion in 2007. This follows a small decrease in 2006. In 2007, only upland cotton and peanuts are expected to receive payments.”

And with respect to marketing loans, ERS said that, “Marketing loan benefits—including loan deficiency payments, marketing loan gains, and certificate exchange gains—are projected at $1.0 billion in 2007, down from $1.8 billion in 2006. In 2006, upland cotton producers and corn producers received 62 percent and 24 percent, respectively, of total marketing loan benefits. In 2007, upland cotton producers are likely to realize almost 99 percent of the total marketing loan benefits, of which 95 percent are certificate exchange gains. At current price levels, marketing loan benefits are not available to the other program crops.”

See this graph for an excellent breakdown of government payment levels over the past 10 years.

A separate ERS briefing room, “Farm Income and Costs: Farms Receiving Government Payments,” was also updated yesterday. This page contains a reservoir of information regarding federal farm payments.

Numerous graphs and written explanations located at this ERS briefing room provide a variety of different angles to assess federal payment distributions.

In particular, this graph provides an interesting breakdown of payment levels by farm type; while this graph details farm payment levels by payment class.

***

In a related article regarding the price level of some agricultural commodities, Financial Times writer Javier Blas reported yesterday that, “Policymakers already concerned about the relentless rise in global food inflation are facing more bad news in the shape of soaring soyabean prices.

“Soyabean prices have risen to their highest level in 34 years, boosted by strong Chinese demand and fears that current prices are not high enough to swing acreage from corn to soyabeans in the US, the world’s largest producer.

“In Chicago, soyabean prices this week hit $11.14 a bushel, the highest level since July 1973, helped byrising demand from the biofuel industry as crude oil prices approached $100 a barrel and also by worries about the Brazilian crop - the world’s second largest - after dry weather in Mato Graso state, the key producing area. Soyabeans traded yesterday at $10.85½ a bushel.

“The price-jump threatens to resonate through the supply chain, boosting meat and poultry prices because soyabean is used largely for animal feed, analysts warned.”

The FT article added that, “Peter Thoenes, an oilseeds specialist at the UN Food and Agriculture Organisation in Rome, said that Brazil and other South America soyabean crops were now key to offseting the shortfall from the US, after farmers in the world’s largest soyabeans-growing region converted some of their acreage to corn.

“‘Any unfavourable weather in South America could spark a price hike,’ Mr Thoenes said.

“The lower soyabean crop coupled with higher demand for animal feed and for biodiesel production has led to a fall in global inventories, with the stock-to-use ratio at the lowest level for at least five years, according to FAO estimates.”

Ethanol – Energy Bill

Bloomberg writer Mario Parker reported in today’s Washington Post that, “VeraSun Energy, one of the nation’s largest ethanol producers,agreed to acquire US BioEnergy, as falling prices are prompting consolidation among producers of the gasoline additive.”

The article stated that, “Swelling supplies of the corn-based fuel have caused ethanol prices to slide 23 percent this year and prompted at least six producers to shelve construction projects. Stockpiles in September, the month of the most recent available data, were up 18 percent from a year earlier, according to the Energy Department.

“‘We needed to see some consolidation in the industry,’ said Ian Horowitz, an analyst at Soleil Securities in New York. ‘This will rationalize the business now.’”

And Lauren Etter reported in today’s Wall Street Journal that, “In a sign that ethanol-industry consolidation is gaining velocity, VeraSun Energy Corp. will acquire rival US BioEnergy Corp. in a deal valued at about $700 million, creating what could become the largest U.S. producer.

“The deal comes as the industry faces a glut of product, opposition from environmental and livestock trade groups and an uncertain future as Congress weighs mandates to help producers.

“Consolidation is seen as a way for producers to become more efficient and more competitive in a crowded, volatile and cutthroat market where profit margins are low and more production capacity is scheduled to come online. Shares of both companies rose yesterday.”

***

And with respect to the Energy Bill, John J. Fialka reported in today’s Wall Street Journal that, “With a deal nearly in hand that could have a profound effect on the auto industry, lawmakers hammering out a new energy bill are considering proposals that could impact oil refiners and other businesses in an effort to spur use of ethanol and other alternative fuels.

“The talks, which could run into the weekend, are aimed at drafting a compromise package for House and Senate floor action as early as next week on legislation intended to reduce the nation’s dependence on oil. The details could have a major impact on the oil refiners that would be required to make greater use of alternative fuels in their blends or pay a penalty. They are critical to farm groups and a number of high-tech companies hoping to create a new industry devoted to producing fuel from farm wastes, wood chips and other domestic feed stocks.”

The Journal article noted that, “On the alternative-fuel front, House leaders are trying to modify the goals, standards and timetable in legislation already passed by the Senate that will determine which type of ‘advanced biofuels’ would be covered by the effort. Among other disputes, the House wants the Environmental Protection Agency to oversee the program, but the Senate prefers the Energy Department.

“The House proposal would require production of 20.5 billion gallons of ethanol and fuels based on farm wastes and other biological materials by 2015. The Senate proposal calls for 36 billion gallons by 2022.

“The House proposal, which appears to have heavy input from environmental groups, places restrictions on fuels that might qualify. They must produce 50% to 75% less carbon dioxide, measured against conventional ethanol, and face other hurdles. For example, one potential raw material — wood chips — can’t come from national forests where environmental groups object to commercial logging.”

Farm Bill

Reuters news reported yesterday (via DTN) that, “Senate staff workers want to shorten a list of amendments so the stalemated U.S. farm bill can be freed for debate next week, said a spokeswoman for Agriculture Committee chairman Tom Harkin on Thursday.

“If the Senate passes its bill before adjournment in late December, Congress may be able to send a final version of the bill to the White House in January, said House Agriculture Committee chairman Collin Peterson.”

The article noted that, “Staff workers met on Wednesday to identify amendments that would be cleared for floor debate. [Senate Majority Leader Harry Reid (D-Nev.)] has suggested each side could offer a limited number of amendments.

“‘These negotiations are ongoing but we remain hopeful that we can continue to make progress and resume consideration of the bill when the Senate returns,’ said the Harkin spokeswoman.”

EU CAP “Health Check”

Jack Thurston, writing yesterday at the CAP Health Check Blog, noted that, “As DG Agriculture’s spokesman Michael Mann has been keen to stress over the past few days since the publication of the Commission’s communication on the CAP health check, this is just the start of the process of deliberation and debate. Dr Tamsin Cooper of the Institute for European Environmental Policy has written a useful briefing on the next steps in the process.

“According to Tamsin,

“‘Following the publication of the Commission’s Communication, a six-month period of debate and reflection is likely to ensue during which common positions and irreconcilable differences are likely to emerge. This will involve the Commission, in dialogue with stakeholders, the Member States and the European Parliament, prior to the tabling of formal legislative proposals by the Commission in May 2008. The views of stakeholders will be solicited through two stakeholder conferences to be held on 6 December 2007 and 11 January 2008. Itis understood that participants representing a wide range of interests have been invited to the first conference, whereas the second event will focus on issues relating to the dairy sector.’”

The update also pointed to Tamsin’s full briefing regarding the CAP “Health Check,” which can be viewed by clicking here.

(Additional, more general background on the “Health Check” is also available here).

Meanwhile, EU Commissioner for Agriculture Mariann Fischer Boel, updated her blog yesterday, indicating that, “On 20th November, I put my ideas on the table on how to further improve, modernise and streamline the Common Agricultural Policy.

“The Health Check is a chance to build on the reforms introduced since 2003 and prepare both the CAP and farmers for new challenges and opportunities.”

Commissioner Fischer Boel added that, “But I am determined that the next six months should be a period of real consultation with as many people as possible.

“I have called two big conferences. A general hearing on the 6th of December which will deal with all the topics covered by the Health Check and on the 11th of January 2008, a special conference on the future of the dairy sector.

“Both conferences will be web-streamed on the website of DG Agriculture so regardless of where you are in the world, it will still be possible to watch.”

And a news release issued yesterday (“Simplifying the CAP: administrative burden of Cross-Compliance limited, study shows”) stated that, “The burden of red tape on farmers resulting from compulsory standards of environmental protection, public, animal and plant health and animal welfare (so-called Cross-Compliance) is very limited, according to a new report carried out for the European Commission. The report is based on research carried out in five EU Member States, which also showed that the model of direct payments to farmers chosen by each country also has a limited influence on the administrative burden they face. These results, and the proposals for simplification contained in the recent Health Check, put the Common Agricultural Policy in a good position to meet the target of a 25 percent reduction in administrative burden by 2012.

“Mariann Fischer Boel, Commissioner for Agriculture and Rural Development, commented: ‘Simplifying life for our farmers is one of my main priorities. This study shows that a sensible and pragmatic implementation of the Single Payment Scheme and Cross-Compliance can make life a lot easier for farmers. We’ll take the findings of the report very seriously as we continue our efforts to simplify the CAP. And I’m sure that the Health Check exercise will contribute considerably to this process.’”

Keith Good

David Dodds reported earlier this week at the Grand Forks Herald (North Dakota) Online that, “Rep. Collin Peterson, D-Minn., told a roomful of farmers and other interested people Monday that he won’t support an extension of the current farm bill if Congress can’t finalize a new one.”

The article stated that, “‘We got our bill done on time like we said we would, and the Senate is doing what it does best - milling around,’ Peterson said.

“Peterson said he’s hopeful that the Senate will produce a bill in December, and differences with the House could be hammered out quickly in conference committee. He said about 80 percent of the issues could be resolved in January after a scheduled recess, and the rest could be worked out soon after.

“‘We could get this all done in January,’ Peterson said.

“If not, he said, some have brought up the possibility of a two-year extension of the current farm bill. But Peterson said an extension would quash 70 percent of the programs in the new bill that have to do with food stamps and nutrition.”

Later, the Grand Forks Herald article noted that, “At least one attempt by Senate Democrats to spur along a vote has failed. Peterson blamed the delay on Republicans who don’t want to be put in a position to defend a veto by the president.

“Peterson said he likely will have to negotiate directly with the White House to get a bill passed.”

And with respect to the change in leadership at USDA, the article indicated that, “Peterson said Ed Schafer, a good friend and former Republican governor of North Dakota, who is the Bush nominee to be the next secretary of agriculture, most likely will be a nonfactor in the farm bill negotiations. He said rumors are flying that Schafer’s confirmation will be held up until after a farm bill passes.”

The “Washington Insider” section of DTN stated yesterday (link requires subscription) that, “Word has been leaking from Senate Ag Committee staffers this week that the leadership is close to a deal to limit amendments and debate so the farm bill could be brought back on the floor, perhaps as early as next week. However, the future of the bill itself remains far from clear, congressional observers suggest.”

The update noted that, “In appraising the bill’s outlook, a key unknown is the strategy and approach being directed by the White House. The president has threatened to veto either bill now under consideration in the House and the Senate, and his threats have been sufficiently specific that most observers expect that he will follow through on his threat — if a bill is cleared by the Congress.”

“Not only is the situation complex, but it appears to present a dilemma for the White House. If Republicans do not agree to limit debate, they can — and, will — be tagged as anti-farm obstructionists by farm groups that support the committee bill. If they do agree to a deal, the Democrats appear ready and willing to pass a bill the administration is pledged to veto, also an unpopular political move among farm groups,” the DTN update said.

Concluding, the update noted that, “As a result, it seems unlikely that the Senate leadership will be able to agree on new rules of debate as quickly as some are suggesting. As long as the Republican leadership can find reasons to avoid an agreement, or has ‘poison pill’ amendments with some chance of succeeding to make the bill unacceptable to the Senate majority, it is likely to languish in its current limbo.

“Should Senate delays become unacceptablylong, the majority will need to consider ways to make the bill at least modestly acceptable to the White House, either on the floor or in the House-Senate conference. And, in such an environment, significant changes in policy could emerge — an eventuality producers should watch and evaluate very carefully as they emerge, Washington Insider believes.”

***

In news regarding nutrition, the federal budget and food prices, Richard Wolf reported earlier this week at the USAToday Online that, “Half a million people could be cut from a nutrition program for low-income young children, pregnant women and recent mothers next year because prices and caseloads have risen since President Bush proposed his 2008 budget in February.

“The threatened cutback, outlined in a report to be issued this week by the liberal Center on Budget and Policy Priorities, is likely unless Congress and the White House agree to boost funding for the Women, Infants and Children (WIC) program.

“Bush has proposed spending $5.4 billion for the program next year, an increase of about $200 million, to serve 8.3 million people. The caseload, though, has increased to 8.5 million since his budget came out in February. Prices for products such as milk and cheese, which account for about 40% of WIC food costs, have soared. Because of that, the report says, the proposed spending level will cover fewer than 8 million people.”

Mr. Wolf added that, “The Department of Agriculture, which oversees the state-run program, has a $200 million contingency fund. But only $83 million remains, Greenstein says, and the report assumes it will be spent.

“Department spokeswoman Jean Daniel says a supplemental appropriation could be sought or clients could enroll in other food programs if the 2008 funds are not enough.

“‘We look at this very carefully on a regular basis so that we’re able to avert just these kinds of situations,’ Daniel says. ‘There are options.’

“The WIC program was created in 1974 to help low-income women and children up to age 5. It provides vouchers for specific nutritious foods, such as milk, cheese, juice, cereal and peanut butter, as well as screenings, referrals and education. While not an entitlement such as food stamps, its popularity among both Democrats and Republicans has ensured increased funding over the years. Eligibility is capped at 185% of the federal poverty level, or $38,200 for a family of four.”

Meanwhile, in a separate issue regarding nutrition, Rob Stein reported in today’s Washington Post on a topic that has been brought up in the 2007 Farm Bill debate: Obesity.

Mr. Stein indicated that, “The obesity epidemic that has been spreading for more than a quarter-century in the United States has leveled off among women and may have hit a plateau for men, as well, federal health officials reported yesterday.

“While the proportion of adults who are obese remains high at more than 30 percent, the rate in 2005 and 2006 was statistically unchanged from the last time government researchers took a national snapshot two years earlier.

“The findings confirm earlier indications that the increase in obesity among women had stalled and suggests that the same trend may have begun among men.

“‘This is encouraging,’ said Cynthia L. Ogden of the National Center for Health Statistics, which released the new data. ‘I think we can say that obesity in women is stabilizing, and I’m optimistic that we may be seeing a leveling off in men, as well.’”

Energy Bill & Biofuels

Congressional Quarterly reported yesterday that, “House and Senate negotiators are poised to seal a deal on an energy bill that would strengthen fuel economy standards for the first time in three decades.

“The measure also would require billions of gallons of alternative fuels to be incorporated into gasoline over the next 13 years, according to staffers and draft language being circulated.

“The compromise, which is expected to land in the Office of the Legislative Counsel for drafting very soon, reconciles the major differences between separate versions of energy legislation that passed each chamber earlier this year.

“It would require the nation’s fleet of vehicles to meet a 35 miles-per-gallon fuel efficiency standard by 2020 and would mandate 20.5 billion gallons of ethanol and other biofuels to be in use by 2015.”

Steven Mufson reported in today’s Washington Post that, “Congressional negotiators are nearing agreement on the components of an energy bill that would boost fuel efficiency standards for vehicles and require vast increases in the use of biofuels, according to congressional aides and lobbyists.”

The Post article added that, “Efforts to pass energy legislation have been dragging on all year. But there was pressure to complete an agreement by yesterday or today because congressional leaders want to bring the bill to a vote when members return from recess next week, and a few days are needed to hammer out the exact language. Moreover, with oil prices at more than $90a barrel, many lawmakers feel compelled to take some sort of action on energy.

“The two main and most likely features of the final bill are variations of what the Senate adopted. In addition to the 35 mile-per-gallon target for 2020, the Senate bill ramped up the requirement for gasoline makers to use ethanol and other biofuels, to at least 13 billion gallons by 2012 and 36 billion gallons by 2022.

“There has been one change in the biofuels measure. While the Senate bill required that at least 3 billion gallons of ‘advanced biofuels’ derived from sources other than corn be used starting in 2016, escalating to 21 billion gallons by 2022, new language would require that the first advanced biofuels be used in 2013. That might ease demand for corn, which has soared in price, and recognize that companies are making progress in using new feedstocks in pilot projects.”

In a related article on the issue of new feedstock use for ethanol, Scott Wente and Don Davis reported on Saturday at the In-Forum Online (North Dakota) that, “Yet also this year, the flourishing corn-based ethanol industry slowed down, the result of a flooded marketplace and growing concerns about the environmental impacts of ethanol production.

“Energy leaderssay the downturn is a speed bump and they look ahead, proclaiming that Minnesota is on the verge of the next big home-grown energy development, known by the tongue-tangling term ‘cellulosic ethanol.’ On the verge, that is, if ‘verge’ is defined as a decade or more away.

“That is when experts say the country will see commercial production of cellulosic ethanol, which researchers predict could be made with wood, grasses, corn stalks and other plant material, leaving valuable corn kernels for livestock feed. Even garbage can be turned into ethanol.”

The authors noted that, “Cellulosic ethanol is the buzz in renewable energy, with pilot projects under way, and state and federal lawmakers pumping record levels of research funding into the area.

“Until there is large-scale production of cellulosic ethanol, existing and new plants in Minnesota’s corn belt will distill the corn-based ethanol the state helped make famous.

“‘You will continue to see corn and soybeans used for ethanol and biodiesel,’ Gov. Tim Pawlenty said. ‘The promise of cellulosic is still largely a promise.’

“Experts and agriculture political leaders say the next generation ethanol is seven to 15 years away from large scale, money-making production.”

Philip Brasher, writing in today’s Des Moines Register, noted that, “Congressional Democrats are negotiating a new energy bill that would require higher use of ethanol and biodiesel, ensuring a growing market for the two crop-derived fuels.”

Mr. Brasher added that, “Ethanol production is growing so fast that it will soon outstrip the nation’s mandate set in 2005 that requires 7.5 billion gallons of annual biofuel production by 2012. The biodiesel industry is being hammered by soaring soybean oil prices, which exceed the levels that producers can afford to pay, and those producers want a special usage mandate.

“‘We’re pleased with what we’re hearing as far as what the speculation is,’ Jon Doggett, a lobbyist for the National Corn Growers Association, said Wednesday. ‘We’re anxious to see what the final package will look like.’

“House Speaker Nancy Pelosi has said she would like to have a compromise energy bill on the House floor next week. She said the bill would ‘reduce our dependence on foreign fuels and promote energy efficiency.’”

DTN writer Chris Clayton reported yesterday (link requires subscription) that, “While members of Congress do a ‘point-counterpoint’ behind the scenes on potential energy legislation, agriculture finds itself divided as key livestock groups such as the National Cattlemen’s Beef Association find themselves more aligned with ethanol critics than supporters.

“NCBA has felt some heat because the group has raised questions about the expansion of ethanol and the impact on the market of subsidies such as the 51-cent blenders’ tax credit. Such rifts are getting more attention as Congress works to wrap up the energy bill.

“‘We have been called selfish and all kinds of names throughout this process for simply asking questions, which is a little bit frustrating,’ said Jay Truitt, a lobbyist for NCBA. ‘We just didn’t think people needed to keep stomping on the gas pedal to keep this industry going.’”

Doha

Reuters writer Doug Palmer reported yesterday that, “The U.S. Congress could quickly renew ‘fast track’ authority for the White House to finish world trade talks if there is a long-awaited breakthrough in those negotiations, an analyst said on Wednesday.

“Top Brazilian and Indian trade officials have recently complained the White House’s lack of trade promotion authority — also known as fast track trade legislation — was an impediment to finishing the 6-year-old world trade talks.

“That legislation, which expired in June, requires Congress to approve or reject trade agreements without making any changes. Since any trade deal is likely to contain some unpopular provisions, trade promotion authority is considered essential to prevent U.S. lawmakers from picking agreements apart.”

The Reuters article also stated that, “Ed Gresser, director of trade and global markets project at the Progressive Policy Institute, agreed that the White House’s lack of trade promotion authority was not a serious obstacle to countries reaching a world trade deal.

“But whether Congress would actually give President George W. Bush trade promotion authority could depend on the reaction of leading Democratic candidates for president, he said.

“‘If (a Doha breakthrough) happens, it will suddenly burst upon Congress and also upon the presidential candidates,’ who both have been paying little attention to the round, Gresser said.

“If the Democratic nomination race is still hotly contested, leading candidates might be reluctant to support renewing trade promotion authority out of fear of losing votes, he said.”

EU CAP “Health Check”

Reuters writer Jeremy Smith reported earlier this week that, “EU farm ministers gave a fairly warm welcome on Monday to a blueprint for reforming agriculture policy, focusing on ideas for making countries spend more on rural development and planned subsidy ceilings for large farms.

“Last week, EU Agriculture Commissioner Mariann Fischer Boel unveiled her so-called ‘health check’ of the Common Agriculture Policy (CAP), a lavish program that devours 40 percent of the EU budget.

“While the ministers were mostly encouraging in their initial reactions to the paper, several raised concerns about a proposal that would force them to channel increasingly more direct farm subsidies into projects designed for improving the countryside.”

The article noted that, “Discussions on the broad policy document will continue until March, providing the basis for Fischer Boel to draw up formal reform proposals in April or May. These would then be for ministers to negotiate and endorse by the end of 2008.”

Concluding, Mr. Smith pointed out that, “For many observers, the mere talk of health checks echoes language used by Fischer Boel’s predecessor Franz Fischler when he launched ideas for a so-called mid-term review in July 2002.

“That turned into a push for a full-scale policy overhaul, to the deep annoyance of France, by far the largest beneficiary of EU farm cash. CAP funding now amounts to around 44 billion euros ($65.4 billion) a year.

“‘While the health check is not a fundamental reform, it is nevertheless more than fine-tuning,’ Fischer Boel told the ministers, adding that she was ‘not rethinking the principles of the 2003 CAP reform.’”

Keith Good

Lauren Etter reported in today’s Wall Street Journal that, “Little over a year ago, ethanol was winning the hearts and wallets of both Main Street and Wall Street, with promises of greater U.S. energy independence, fewer greenhouse gases and help for the farm economy. Today, the corn-based biofuel is under siege.

“In the span of one growing season, ethanol has gone from panacea to pariah in the eyes of some. The critics, which include industries hurt when the price of corn rises, blame ethanol for pushing up food prices, question its environmental bona fides and dispute how much it really helps reduce the need for oil.”

The article explained that, “Ethanol’s problems have much to do with its past success. As profits and production soared in 2005 and 2006, so did the price of corn, gradually angering livestock farmers who need it for feed. They allied with food companies also stung by higher grain prices, and with oil companies that have long loathed subsidies for ethanol production.”

The Journal article noted that, “Ethanol prices peaked at about $5 a gallon in some markets in June 2006, according to Oil Price Information Service. The price soon began to slide as the limited market for gasoline containing 10% ethanol grew saturated. New plants kept coming online, increasing supply and dropping prices further. Today, the oil refiners that purchase ethanol to blend in need pay only about $1.85 a gallon for it.”

With respect to ethanol supply, the article stated that, “The low prices reflect soaring output. Global ethanol production has grown to a projected 13.4 billion gallons this year, from 10.9 billion gallons in 2006, according to the International Energy Agency. The U.S. production is more than half of that total, or about seven billion gallons this year, up 80% in two years. It equals less than 4% of U.S. gasoline consumption.

“Analysts expect U.S. production capacity to keep growing, encouraged both by high oil prices and by the hope that Congress will stiffen the mandate for refiners to use ethanol. Some observers regard the profit squeeze as part of an ordinary industry shakeout that will ultimately leave the best producers in a position to thrive. As ethanol prices were pushed lower and corn prices stayed high, ethanol profit margins dropped from $2.30 per gallon last year to less than 25 cents a gallon.”

After a detailed and interesting historic outline highlighting some of the key political developments with respect to ethanol, Ms. Etter indicated that, “But even though U.S. farmers this year planted their biggest crop since World War II, prices have stayed well above $3 a bushel, thanks to rising demand in developing countries and poor weather in some grain-growing nations. Theprice is expected to stay well above $3 next year as farmers shift some land from corn to two other crops whose prices have risen sharply, wheat and soybeans.”

Meanwhile, Richard Simon reported in today’s Los Angeles Times that, “With oil prices in record territory, presidential candidates stumping for votes in corn-centric Iowa, and congressional Democrats anxious to pass an energy bill to cut the nation’s dependence on Mideast oil, this should be the right moment for ethanol.

“But a plan to dramatically increase ethanol production has become a major sticking point in congressional negotiations to complete work on the bill. And it has created a challenge for House Speaker Nancy Pelosi, whose Democratic caucus has split over the issue.”

Mr. Simon went on to provide this analysis: “Pro-ethanol Democrats and farm groups want the bill to require a nearly fivefold increase by 2022 in the amount of home-grown alternative fuels that must be blended into gasoline. They say the mandate would reduce U.S. dependence on foreign oil and help America’s farmers.

“Democrats on the other side, joined by environmental and food-industry groups, think the mandate could raise the price of corn used for food; harm the environment by using more land to produce biofuels; and gouge taxpayers by expanding ethanol subsidies.

“Because of the provision’s popularity among farm-state lawmakers from both parties, it is seen as the glue holding together an energy bill that is expected to include the first significant increase in vehicle fuel-economy rules in decades.”

Later, the L.A. Times article pointed out that, “In 2005, when it drafted the last energy bill, Congress decided to require that 7.5 billion gallons of ethanol be added annually to U.S. gasoline supplies by 2012, an amount expected to be reached soon. California uses about a billion gallons of ethanol.

“At the heart of this year’s dispute on Capitol Hill is the Senate bill’s renewable fuel standard, which would mandate 36 billion gallons of alternative fuels by 2022 — up to 15 billion from corn-based ethanol. After 2016, an increasing portion would have to be advanced biofuels, including cellulosic ethanol produced from plant materials, such as switch grass and wood chips, thought to be easier on the environment than corn-based ethanol.

“The House version of the bill includes no such mandate. Instead, it offers tax incentives to promote research on cellulosic ethanol. A Pelosi spokesman said the San Francisco Democrat wanted an expansion of the renewable fuel standard that would include ‘a significant boost to the cellulosic ethanol industry.’”

And near the article’s conclusion, Mr. Simon noted that, “About 24% of the nation’s corn is expected to go to ethanol production this year, up from 13% in 2004, before Congress enacted the ethanol mandate.

“Even though corn production has increased, corn prices have shot up. A bushel sold for about $3.50 last week, up from about $2 two years ago.”

In other news coverage regarding the Energy Bill, John M. Broder reported in today’s New York Times that, “Congressional negotiators are nearing agreement on a measure to set significantly higher fuel economy standards for cars and light trucks, according to aides and lobbyists following the talks.

“A deal could come as early as Wednesday to require all passenger vehicles sold in the United States to reach a combined fleetwide average of 35 miles a gallon by 2020. If enacted into law, the measure would be the first major increase in vehicle fuel economy standards in two decades.”

Mr. Broder indicated that, “The House and Senate passed broad energy legislation earlier this year, but they have been unable to resolve differences between them. The fuel economy measure is considered among the most effective ways to reduce the consumption of oil — which is selling at near-record prices — and the production of greenhouse gases that contribute to the warming of the atmosphere.

“The House speaker, Representative Nancy Pelosi of California, said this week that she hoped to gain passage of an energy bill containing the new mileage rules by the middle of next week.”

The Times article also noted that, “A provision passed by the Senate but not the House would require the increased use of alternative fuels like ethanol and liquids produced from wood or municipal waste, with a goal of 36 billion gallons of such biofuels by 2022. A version of that measure is expected to survive, although negotiators are still working on complex formulas for different types of biofuels.”

DTN writer Chris Clayton reported yesterday that (link requires subscription), “The greatest danger to the ethanol industry is the divide in agriculture over the renewable fuel that truly came to the forefront in 2007, Sen. Charles Grassley said Tuesday.

“In his weekly call with agriculture reporters, Grassley, R-Iowa, said the short-term view on ethanol taken by livestock producers such as cattle feeders is dangerous, and is the first time that agriculture has not been united on ethanol production.

“‘I think there is a short-termview by some in agriculture that they are going to regret,’ Grassley said.”

The DTN article added that, “Grassley said senators will try to increase the RFS wherever they can, meaning possibly taking up an amendment by Sen. Pete Domenici, R-N.M., that would increase the RFS to 36 billion gallons by 2022. Reflecting the rift on increased ethanol from grain, the National Cattlemen’s Beef Association pegged Domenici’s proposal as one of the ‘harmful amendments’ to the farm bill.”

(To listen to Sen. Grassley’s radio news conference from yesterday, just click here).

In other news regarding biofuels, the Associated Press reported on Monday that, “A plant once called ‘Gold of Pleasure’ that flourished thousands of years ago in Europe could be a promising new crop - and source of energy - for farmers in the arid U.S. High Plains.

“A new project announced last week in Montana and a provision in the farm bill moving through the U.S. Senate could jump-start production of the crop, now called camelina.

“Recently thought of as a weed, politicians are now touting it as a hearty source of energy that will survive dry weather in states like Montana and North Dakota, and also as a way to reduce the country’s dependence on foreign oil.”

The AP article stated that, “The farm bill also includes a provision authored by Sen. Max Baucus, D-Mont., to extend renewable energy tax credits to camelina, along with other language that would include the crop in other farm programs.

“But not everyone is on board yet. Camelina is new enough that many people don’t even know what it is.

“It has been mocked by some politicians in Washington who don’t like the $286 billion farm bill, saying it’s too expensive and full of extra money to help lawmakers win re-election.

“Sen. Judd Gregg, R-N.H., one of the leading Republican critics of the legislation, mentioned camelina in a recent Senate floor speech excoriating the bill.”

The article indicated that, “Sen. Kent Conrad, D-N.D., an author of the farm bill, said his state is closely watching Montana’s progress with camelina. He said the farm bill incentives could spur rapid increases in production of the crop around the region.”

And Matthew L. Wald reported in today’s New York Times that, “A Portuguese oil company, Galp Energia, plans to announce today that it is building a 6,500-barrel-a-day plant to make diesel fuel from vegetable oils using a method akin to refining oil.

“Themethod, developed by UOP, a subsidiary of Honeywell, and Eni, the Italian energy company, adds hydrogen to oils derived from food crops to create a substitute that the companies describe as superior to ordinary diesel fuel.

“The long-term goal is to modify the process to use oil from algae or from jatropha, a hardy shrub from Central America whose oil has long been burned in lamps and used to make soap.”

Farm Bill- Extension Issues

The Congressional Research Service (CRS) recently updated a report entitled, “Possible Expiration of the 2002 Farm Bill,” which was written by Jasper Womach (Nov. 16).

In part, Mr. Womach explained that, “The mandatory commodity support programs authorized in the 2002 farm bill cover the 2007 crops. So, all subsidy obligations related to calendar year 2007 production are covered by the law. For commodity support programs, there is little reason to enact a farm bill before the end of the calendar year. In fact, past farm bills generally have been enacted late in the year, after the end of the fiscal year. The 1981 and 1985 farm bills were enacted in late December, and the 1990 farm bill was enacted in late November. What was expected to be the 1995 farm bill was not enacted until April 4, 1996, the most extreme case of belated action. Even in that case payments were made onthe 1995 crops and farmers went ahead with planting operations for their 1996 crops.

“Policy officials and the agriculture community expect a 2007 farm bill to be enacted before the end of this calendar year. However, lack of new commodity support legislation before harvest in 2008 does little harm other than leaving producers of ‘covered commodities’ uncertain about the size of payments they might receive. This uncertainty about future policy could affect some farmers’ ability to acquire production loans from commercial lenders. Even if Congress deems a temporary extension necessary for the commodity support programs beyond the 2007 crop year, that action likely could wait until the end of 2007.”

The CRS report noted that, “If Congress takes no action on commodity support before the beginning of the 2008 harvest, then the non-expiring provisions of primarily the Agriculture Adjustment Act of 1938 and the Agriculture Act of 1949 take effect. Provisions of these permanent laws are temporarily superseded by each farm bill. So, absent any amendments before the 2008 harvest, the permanent authority will apply. However, the commodity support provisions of the permanent law are so radically different from current policy and inconsistent with today’s farming, marketing, and trade practices, as well as costly to the federal government, that Congress is unlikely to let permanent law take effect.”

EU “Economic Partnership Agreements”

Alan Beattie reported today at the Financial Times Online that, “The European Union has reached a trade deal with an east African bloc – its second success in persuading developing countries to sign such agreements before an end-of-year deadline.

“The European Commission said it had agreed an interim deal with the East African Community – comprising Burundi, Kenya, Rwanda, Tanzania and Uganda – that would see 80 per cent of their tariffs against EU goods cut within 15 years.”

The article noted that, “The EU has been accused by development campaigners of coercing the African, Caribbean and Pacific group of nations into signing deals by the end of 2007, when current agreements expire.

“It has also come under fire for pressing them to open their economies too rapidly to EU imports.”

For more detail and background on this issue, see Sunday’s FarmPolicy.com update, “EU ‘Economic Partnership Agreements’ Could Impact Some U.S. Ag Sectors.”

Brazil,Canada- WTO Case Regarding U.S. Subsidies

Reuters news reported yesterday that, “Brazil and Canada called on Tuesday for the World Trade Organization (WTO) to investigate U.S. farm subsidies, which they said break WTO rules.

“The United States rejected both calls, arguing that it was more important for the three big farm exporters to cooperate on securing a new deal in the long-running Doha trade talks, WTO officials said.”

The article explained that, “Under WTO rules, Brazil and Canada can now repeat their request for dispute panels at the next meeting of the WTO’s dispute settlement body on December 17 and they will be established.

“Countries that are the subject of a WTO dispute can object once to the establishment of a dispute panel, but cannot veto it the second time.

“If all three countries agree, the two disputes could be consolidated and handled by a single panel.

“Canada and Brazil said that U.S. farm subsidies had exceeded permitted levels in every year from 1999 to 2005, excluding 2003.”

For more background on this issue, see this FarmPolicy.com update from November 9, “Canada Requests New WTO Panel on U.S.Agricultural Subsidies.”

USDA Chief Economist Dr. Keith Collins to Retire

A press release issued yesterday by USDA stated that, “Acting Agriculture Secretary Chuck Conner has announced the Jan 3, 2008 retirement of USDA Chief Economist Dr. Keith Collins and the appointment of Deputy Chief Economist Dr. Joseph Glauber as Acting Chief Economist. Glauber is currently on detail to the office of the U.S. Trade Representative and serving as Special Doha Agricultural Envoy. He is expected to assume the duties of Chief Economist full-time beginning in mid-December.”

The release added that, “Collins has served as USDA Chief Economist for the past 15 years overseeing USDA’s program of market forecasts and projections. Collins’ 32 years of federal service has included leadership with wide-ranging impact in the economic analysis of agricultural policy, energy and bioproducts, risk assessment and cost-benefit analysis, and global climate change. Collins has also served as Chairman of the Board of Directors of the Federal Crop Insurance Corporation for the past 7 years and Chairman and Vice Chairman of the USDA Graduate School. His key roles in USDA farm bill activities began with the 1985 farm bill and continued with frequent testimony on behalf of USDA in congressional hearings and briefings.

“Glauber, USDA Deputy Chief Economist, returns to USDA in December from temporary assignment to the office of the U.S. Trade Representative, and will retain his role as Special Doha Agricultural Envoy for the United States. Glauber has served as Deputy Chief Economist at USDA since 1992. In addition to his work in the Doha negotiations, he served as senior staff economist for agriculture, natural resources and trade at the President’s Council of Economic Advisers and as an economist at the USDA Economic Research Service. Glauber received his Ph.D. in agricultural economics from the University of Wisconsin in 1984 and holds an AB in anthropology from the University of Chicago.”

Keith Good