The Associated Press reported on Friday that, “U.S. farm subsidies under the 2002 farm bill have been repeatedly challenged by trading partners, and new bill proposals from Congress would likely worsen the situation, the U.S. Department of Agriculture’s top economist said.

“‘We are going to face continuing challenges for our domestic support programs’ unless lawmakers make significant changes to their legislation to overhaul the farm bill, USDA Chief Economist Keith Collins told Dow Jones Newswires in an interview Thursday.”

The AP article indicated that, “Instead of reining in subsidies in a time when some prices farmers receive for their crops are at record-high levels, Collins said, Congress is trying to raise price support levels and target prices.

“The subsidy challenges by U.S. trading partners have been lodged through the World Trade Organization. A WTO ruling in December slammed the U.S. for not sufficiently complying with an earlier ruling that cotton subsidies need to be curtailed.”

“Substantial counter-cyclical farm payments and marketing-assistance loan programs are still under fire, Collins said, and Congress’ proposals don’t address the problems.

“‘Under the House and Senate farm bill proposals,’ he said, ‘they do not reform domestic programs in a way that would eliminate such challenges and, in fact, they may aggravate such challenges.’”

The AP article reminded readers that, “The United States also faces yet another possible challenge through the WTO. Upon request by Canada and Brazil, the WTO opened an investigation in December into whether the United States has exceeded its ceiling on trade-distorting subsidies for corn, cotton, soybeans and other farm commodities.

“Brazil and Canada, according to news reports, asked for the WTO investigation after failing to get the U.S. to limit subsidies in the ongoing WTO Doha Round of trade talks.

“U.S. lawmakers, Collins said in the interview, are still working under the U.S. interpretation of constraints agreed on in the 1994 Uruguay Round trade pact, not in the spirit of the Doha Round. The Uruguay Round was agreed on under the General Agreement on Tariffs and Trade, or GATT, which became the WTO.”

For related background on U.S. interpretation of WTO rules, versus the spirit of the DohaRound, see this FarmPolicy.com update from October 8, “More Technical Background on the U.S. Classification of Direct Payments.”

For additional analysis on the Farm Bill debate and WTO issues, see, “Farm Bill: Does Breaking WTO Crop Subsidy Rules Matter To Congress?” which was posted yesterday at The Mulch Blog.

Strong Prices Yield Conservation Unease

Peter Harriman, writing in Saturday’s Argus Leader (South Dakota) reported that, “The first big wave of idled South Dakota farm land being returned to production is washing over agriculture.

“About 300,000 acres that had been dedicated to growing native vegetation through the federal Conservation Reserve Program are coming out of the program and probably will be replanted to traditional row crops.

“Before the wave crests in a couple of years, about 800,000 acres in South Dakota will be withdrawn from CRP, based on the number of landowners who have not opted to renew their 10- to 15-year contracts.”

Mr. Harriman noted that, “The effect on wildlife and water quality of plowing under four-fifths of a million acres of grass is going to be substantial,wildlife officials warn.

“‘Wildlife managers bust their buns over a career to impact tens of thousands of acres. To see 300,000 acres’ lost to crop production next year, ‘that’s going to come with a cost,’ says George Vandel, South Dakota Game, Fish and Parks wildlife director.”

The article stated that, “But even as the total acres planted in the state are set to increase, heads of commodities groups are wondering what crops will be acreage winners and losers in 2008.”

“Wheat was selling at $9.37 Friday and soybeans at $12.20,” Mr. Harriman reported, adding that, “Future corn demand is bolstered by a requirement in the new federal energy bill that 15 billion gallons of corn-based ethanol be produced by 2015. A big question for farmers, though, is whether the prices for wheat and soybeans have been bid up by speculators or whether they reflect true supply and demand and probably will endure.”

In conclusion, the article indicated that, “Overall, at its peak, the state had about 1.5 million acres set aside in CRP, and in any given year, about one-third was affected by emergency haying or grazing, leaving two-thirds, or a million acres, as undisturbed cover.

“‘If we can get that cellulosic ethanol to be managed like CRP,’ Vandel says, ‘we might be able to come up with a way of maintaining that core of a million acres.’”

Recall that Bruce Babcock and Silvia Secchi noted in an article published in the Spring 2007 edition of the Iowa Ag Review (“Impact of High Corn Prices on Conservation Reserve Program Acreage”) that, “Growing demand for corn due to the expansion of ethanol has increased concerns that environmentally sensitive lands in the Conservation Reserve Program (CRP) will return to crop production. Most of the land currently in the CRP was enrolled because of the potential for environmental damage if it were farmed. A return of this land to crop production would likely lead to lower environmental quality.”

Near the conclusion of the article, the authors stated that, “Our results indicate that land currently enrolled in the CRP offers significant environmental benefits that could be lost under higher commodity prices. Maintaining current levels of environmental quality will require substantially higher spending levels.”

With respect to commodity prices and acreage allocation decisions this spring, Associated Press writer Jackie Farwell reported on Friday that, “U.S. exporters have already sold roughly three-quarters of the soybeans the Agriculture Department predicts for the whole marketing year, which ends in June 2008. To make up for dwindling inventories, analysts say farmers need to plant more soybeans than they did last year –when an ethanol boom led farmers to favor planting corn acres over soybeans.

“So far this year, soybean exports are running at 735 million bushels, or about 74 percent of the USDA’s total estimate of 995 million bushels. Last year, the farmland dedicated to soybean plantings was reduced by 15 percent.

“Feeding Friday’s record was continued strong demand from China, the world’s largest consumer of soybean oil, said DTN commodities analyst Elaine Kob.”

The AP article noted that, “A bushel of soybeans for March delivery settled down 8.5 cents at $12.23 a bushel. The price had jumped to $12.48 overnight, beating June 1973’s closing high of $12.10 but still shy of that day’s trading record of $12.90 a bushel.

“Wheat for March delivery fell 26.25 cents to $9.15 a bushel. March corn fell 2.75 cents to $4.52 a bushel.”

Definition of a Farm, Census of Agriculture

Des Moines Register writer Jerry Perkins reported on Sunday that, “It’s the 2007 Census of Agriculture, coming soon to mailboxes on rural routes all over Iowa and the other 49 states, the District of Columbia, Puerto Rico, American Samoa, Guam, Northern Mariana Islands and the U.S. Virgin Islands.

“Dating to 1790, the ag census is a government effort to take the pulse of agriculture every five years.

“Thick packets of census forms, looking a bit like tax booklets, were mailed Friday. The government isn’t asking for the information; farmers are required by law to return their census forms by Feb. 4.”

The Register article explained that, “The census is meant to cover all farms, defined by the Department of Agriculture as any entity with $1,000 in annual sales or potential sales.

“‘If you have a few acres with some horses and goats, guess what?’ Prusacki [Joseph Prusacki, director of the Iowa field office of the USDA’s National Agricultural Statistics Service] said. ‘You’re a farm.’”

The editorial board at The Forum (North Dakota) picked up on the farm definition issue in an opinion piece posted on Friday.

In part, the editorial stated that, “Farm census forms will be mailed today and should reach the nation’s farmers and ranchers next week. The census, which is done every five years, is important in formulating farm policy and getting a read on agribusiness in the nation’s small farm communities. Farmers and ranchers should fill it out and send it in if they want to have a voice in their future.

“That being said, some features of the ‘farm’ census seem downright silly in farm country, where production agriculture is a mainstay of the economy. For example, the U.S. Department of Agriculture considers a farm or ranch any place that produces or sells $1,000 or more of agriculture products during the census year. A thousand bucks?!

“Let’s see. That could mean if a suburbanite has a big enough yard, plants enough sweet corn and tomatoes, sells the ripe produce from a roadside stand – and sales total up to $1,000 – he’s a farmer and he’s running a farm. So says USDA.”

The editorial indicated that, “Despite the USDA’s peculiar definition of ‘farm’ and ‘farmer,’ the agriculture census is important to genuine farmers and ranchers. The men and women who actually make their living on farms and ranches need to be counted in order to maintain a strong voice in ag policy. Securing an effective farm bill every five years gets harder every cycle.”

In addition, as FarmPolicy.com noted on Friday, “the definition of a farm employed by the USDA for data collection purposes is ‘any operation that sells a least one thousand dollars of agricultural commodities or that would have sold that amount of produce under normal circumstances.’” Some farm policy observers suggest that this is an overly broad definition of a “farm” and hampers the persuasiveness of arguments relating to federal payment distributions based on farm income.

Keith Good

The U.S. Department of Agriculture’s National Agricultural Statistics Service (NASS) released their monthly Agricultural Prices report on Friday. In part, the NASS report stated that, “The preliminary All Farm Products Index of Prices Received by Farmers in December, at 151 percent, based on 1990-92=100, increased 5 points (3.4 percent) from November. The Crop Index is up 10 points (6.5 percent) but the Livestock Index is unchanged. The All Farm Index and All Crop Index are at record highs.”

The report also included graphical illustrations of prices received for key program crops, including, corn,soybeans, wheat and cotton.

As the market price of some of these commodities ratchets upward, so does the value of farmland.

Jim McTague, writing recently at Barron’s Online, reported that, “As city slickers in many parts of the nation see the market prices of their homesteads deflate faster than a New Year’s party balloon, farmers are watching the values of their land swell by annual double-digit percentages. Nationwide, farmland prices skyrocketed 50% over the past three years, to an average of close to $2,200 an acre through August, according to the U.S. Department of Agriculture [see this graph from the article]. While that’s the latest month for which federal data are available, there’s no doubt that prices are still sprinting ahead. - Ground zero for the phenomenon could very well be Iowa, which, like a newly active volcano, sits at the center of a massive dome of rising farm and pastureland prices stretching across America’s heart and beyond, from Ohio to the Dakotas. Bidders for Iowa farmland have become almost as eager as the politicians scurrying around the Hawkeye State desperately stumping for next month’s presidential caucuses.”

The Barron’s article went on to explain that, “The catalysts in the farmland bubble are federal subsidies to ethanol producers and the belief that ethanol demand will keep rising and that China’s and India’s new wealth will keep boosting global commodity prices.

“Indeed, U.S. farmers are switching to corn from other crops, curbing supplies of food grains. Nationwide, from 2002 to 2007, the number of acres on which corn was planted rose 24%, to 86.1 million. And the energy bill recently signed by President Bush and strongly backed by both parties mandates that oil refiners eventually boost ethanol use as a gasoline additive to 36 billion gallons a year from the current seven billion gallons.

“Aided by a drought that reduced food exports from Australia, net U.S. farm income will hit a record $87.5 billion this year. Americans spent $642.5 billion on food in 2006, up 4.5%. And warnings have begun appearing in print — see the Dec. 8 issue of The Economist — on TV and online about the end of ‘cheap food.’”

However, with respect to a potential “bubble” in the U.S. agricultural economy, Mr. McTague explained that, “Many flush farmers are reinvesting their gains in additional acreage. This means that the market isn’t nearly as leveraged as was residential real estate, says Iowa State’s Duffy [Mike Duffy, an economics professor at Iowa State University], and so is less prone to becoming a bubble. Furthermore, farmers can lock in profits on futures exchanges at current prices going out two or three years. Indeed, 2008 futures for corn, soybeans and wheat reached new highs in late-fall and early-winter trading.

“Investors are so sold on this story line that they still are buying farmland in water-starved areas of Georgia. ‘People still strongly believe that land is a good investment,’ says Ben Hudson of Hudson and Marshall Auctioneers in Atlanta. ‘The drought had no adverse impact on prices.’

“Bruce Babcock, another Iowa State economist, e-mailed Barron’s that the passage of the ethanol provisions in the just-signed energy bill assured him that there is no bubble building. He went out and bought some corn acreage himself.”

Nonetheless, the article did state that, “But the case for farmland isn’t airtight.

“In fact, some smart money that invested in Iowa farmland in 2000 is bailing out, happy to have made a profit. According to Duffy, 56% of Iowa farmland was owned by farmers from 2000 to 2005. The other 44% was owned by investors. The split today is 60% farmers and 40% investors.”

Another important variable to consider is the “shaky economic underpinnings” of the ethanol surge; according to the article: “Without government subsidies, ethanol makes no sense, he [Steve Leuthold, chief investment officer of Leuthold-Weeden Investment Capital in Minneapolis] maintains. And the subsidies could disappear because of a backlash against costs of producing the fuel — higher supermarket prices and huge demand on water supplies. The measure was opposed by groups representing the world’s undernourished and by competing agricultural interests like the National Cattlemen’s Beef Association. Big Oil dislikes the program, too, and Big Oil has deep pockets to lobby Congress.”

In part II of his Barron’s article, Mr. McTague noted that, “The rush for ethanol is easily the biggest factor behind rising farm prices. And a glut of ethanol could develop quickly as more and more farmers try to get rich quick by switching production to corn. In fact, the glut may be here.”

After additional analysis, the article indicated that, “What else could spoil the ethanol story? Ken Green, a scholar at the American Enterprise Institute, says a significant decline in oil prices would burst the bubble. Scientific breakthroughs could hurt, too. Duffy says the $64,000 question is whether efforts to produce ethanol from seaweed will succeed.

“Ethanol, of course, isn’t the only force pushing up farm prices. A global commodities boom has been under way for several years now, lifting prices for a broad variety of foods. But contrary to the assurances of farmland promoters, demand for food isn’t endlessly elastic. Food expenditures in the U.S. dropped three times since World War II — in 1974, 1981 and 1992, years when consumers were pinched. At some point, possibly soon, rising prices for some crops will trigger declines in per-capita consumption,” the article said.

For more on the price of crude oil, AssociatedPress writer John Wilen reported on Friday that, “Oil’s run to nearly $100 a barrel this year jacked up the cost of travel, clothing, beauty products and milk, and many analysts think fuel prices will remain at historically lofty levels throughout 2008.”

The AP article added that, “Other factors will also keep a relatively high floor underneath prices. Demand is expanding in China, India and the Middle East. And political upheaval in oil-producing countries such as Iran, Iraq and Nigeria have sparked worries about possible supply disruptions. These concerns have prompted banks and hedge funds to make big bets on oil.

“Several analysts have boosted their average oil price forecasts for 2008 –$75 a barrel is a common prediction. And many expect tight domestic refining capacity to push gasoline prices higher in the spring, possibly threatening last May’s record of $3.227 a gallon.”

Meanwhile, in other news regarding farmland values and farmland ownership, Bill Hord, writing on Christmas Day in the Omaha World-Herald, reported that, “Increasingly, land ownership is less about sentimental attachment and more about the money. This diminishing of sentimental attachment is the result of trends in agricultural economics and ownership, according to land management specialists.

“First, there is more money to be made on the farm than ever before, according to U.S. Department of Agriculture income statistics.

“‘If I’ve got this asset and it’s been chugging along grossing $300 an acre and now it’s $600 an acre, I’m going to take more interest,’ said Mike Duffy, an agricultural economist at Iowa State University.

“Secondly, new absentee owners have less connection to the farm.”

Later in the article, Mr. Hord noted that, “Rising prices for commodities and land, and resulting lease negotiations, have created a tension between tenant farmers and the landowners, say farm management specialists.

“Rental rates for land in eastern Nebraska with center pivot irrigation systems, for example, increased by 12 percent in 2007 and are expected to go up between 10 and 15 percent in 2008, said Bruce Johnson, an ag economist at the University of Nebraska-Lincoln.”

And near the article’s conclusion, Mr. Hord stated that, “Where there is tension, the current economic environment might bring it out. Ethanol plants’ demand for grain has quickly driven prices for corn and land to new heights.

“‘We are in a period of massive adjustments, figuring out if ethanol is going to stay,’ said Terry Kastens, a Kansas State University farm management specialist. ‘We all pretty much know rents are going to rise and rise quite a lot.’

“Cash land-rental contracts that sometimes were good for three years have led to windfall profits for some farmers. In some cases, tenants have given bonuses to the landowners, so they can share the extra profits, and have offered to renegotiate contracts early.

“Crop share contracts, under which tenants and owners share the expenses and the crops, are less problematic during volatile times, Kastens said.”

***

Interestingly, none of the articles on the farm economy and land values included in today’s update highlighted the Farm Bill.

Certainly there is much more to the Farm Bill than Title I commodity payments, but politicians in rural swing districts worried about a Farm Bill veto can always remind their constituents about the Energy Bill, ethanol, high commodity prices and a robust farm economy. Some of these alternative talking points weren’t available when President Bush signed the last Farm Bill.

For related coverage, see this FarmPolicy.com update from Monday, “Bigger Impact on Agriculture: Farm Bill or Energy Bill?”

Keith Good

An item posted on Wednesday at Farm Futures Online noted that, “When Congress reconvenes in January, a House-Senate Conference Committee will iron out differences between the two versions [of the Farm Bill]. House Agriculture Committee Chairman Collin Peterson, D-Minn., says meetings last week with House Ag Ranking Member Bob Goodlatte, R-Va., Senate Ag Chair Tom Harkin, D-Iowa, and Senate Ag Ranking Member Saxby Chambliss, R-Ga., were productive. He says they all are confident that details can be worked out and actually they aren’t too far apart on policy.

“However the same may not hold true with the White House. Acting Ag Secretary Chuck Conner has been voicing support for reform, in particular a cap on adjusted gross income. Peterson says he is willing to work with the White House on the Farm Bill, but the proposed cap of $200,000 won’t fly.”

Meanwhile, a legislative summary item posted at The Washington Post Online earlier this week by Robert McMahon, included this snippet on the Farm Bill: “But there were signs Congress itself was going to come under fresh scrutiny on U.S. trade practices because of legislation it approved in 2007. For example, business groups said a version of the Farm Bill passed by the House during the summer had protectionist elements. Their chief concern involved a provision to raise nearly $7.5 billion in the next ten years from foreign corporations with U.S. subsidiaries that would help offset the costs of the bill. After the Senate approved the $286 billion Farm Bill in December 2007, the World Trade Organization said it had opened an investigation into whether the United States was violating international rules limiting subsidies to farmers. President Bush has indicated he may veto the bill. Trade remains a hot issue on the presidential campaign trail among Democratic candidates who have vowed tougher measures to assure what they call ‘fair trade.’”

And, in an article from earlier this week, Gannett News writer Faith Bremner reported on legislative accomplishments obtained by Montana’s Congressional delegation, and noted in part that, “Montana’s senior senator, Democrat Max Baucus, said he’s especially proud of his effort to get a new permanent disaster aid program in the farm bill so farmers don’t have to wait a year or two for Congress to get around to helping them. He also cited his work in inserting provisions to improve support payments for wheat and barley and to stop the U.S. Department of Agriculture from closing Farm Service Agency offices.”

The article added that, “Baucus said he doubts Bush will follow through on a threat to veto the farm bill. He predicted Republicans will be less inclined to support Bush’s agenda as the president moves closer to the end of his term and the Republican presidential nominee moves to center stage.

“‘(A veto) would not be very smart,’ Baucus said. ‘Frankly, a lot of people around the country would be very upset if that were to happen. It might affect some congressional races, too.’”

In a broader look at the political environment in Washington, D.C., the article explained that, “The Senate this year held 62 votes to cut off debate, known as cloture votes, the highest number ever recorded in a two-year congressional session, according to the Senate clerk’s office. Thirty-one times, the majority failed to muster the 60 votes needed to proceed with the bill. One of those blocked measures was the farm bill, which won the unanimous support of the Senate agriculture committee.

“Tester [Montana’s freshman senator, Democrat Jon Tester] said the arguments Republican leaders make in defending the blocking maneuvers aren’t convincing, especially when it comes to the farm bill. The bill ultimately moved forward after a month’s delay, but now faces Bush’s veto threat.”

Meanwhile, Mark S. Jordan, writing on Wednesday at the Mount Vernon News Online (Ohio), reported that, “Despite the inclusion of such features as incentives for developing biofuel technologies and improving local markets for farmers, the 2007 Farm Bill approved last week by the Senate has yet to reach the shape many lawmakers would like to see.

“Sen. Sherrod Brown, D-Ohio, was satisfied on one hand that the farm bill was ‘forward-looking and would support Ohio farmers and rural communities.’ But he also felt disappointed that the Senate lost an opportunity to reform the farm bill by defeating Brown’s RESCU (Reduction of Excess Subsidies to Crop Underwriters) Amendment.

“‘Instead, the Senate continued huge overpayments to crop insurance companies,’ Brown said.”

(FarmPolicy.com Note: a related item on Sen. Brown’s amendment is available here; and related FarmPolicy.com audio from the Senate floor debate on this issue is available here).

Mr. Jordan added that, “The amendment, which Brown co-sponsored along with Sen. John Sununu, R-New Hampshire, and Claire McCaskill, D-Missouri, targeted windfall subsidies paid to crop insurers. According to the Government Accountability Office, those subsidies result in 40 cents of every dollar Congress appropriates for farmers going to insurance companies. Brown estimated that his amendment would have cut more than $2 billion in wasteful spending from the bill, but the amendment was rejected.”

In a related item on crop insurance, Nancy Cole reported last week at the Arkansas Democrat Gazette Online that, “Row-crop farmers in Arkansas and Mississippi buy only about half as much crop insurance as their peers nationwide.

“The U. S. Department of Agriculture’s Risk Management Agency wants to know why and how federal programs might be changed to make crop insurance more attractive as a tool for managing the risk of producing rice, soybeans, cotton, wheat, corn and grain sorghum.

“‘Till some changes are made, it’s just not profitable,’ said Tommy Poole, referring to the shortcomings of crop insurance.”

The article stated that, “In 2007, Poole spent $22,000 in premiums to insure about 2,500 acres but received only $18,000 in indemnity payments, despite a nearly total loss on some soybean fields. Next year, instead of buying similar insurance, he plans to buy more fertilizer to improve his yields or buy options on the futures market to protect the prices he will receive for his crops.

“Poole was one of several Arkansas farmers who met Wednesday in Stuttgart to discuss crop insurance. The meeting was one of a series of ‘listening sessions’ held in Arkansas and Mississippi with farmers, crop insurance agents and adjusters, crop consultants, bankers, and extension service specialists.

“The meetings were organized by Tom Earley, an agricultural economist with Promar International, an Alexandria, Va.-based food and agriculture consulting firm that was hired by the Agriculture Department to study the reasons for low participation rates in federal crop insurance programs in Arkansas and Mississippi.”

With respect to conservation and the Farm Bill, Brad Dokken reported last week at the Grand Forks Herald Online (North Dakota) that, “The final farm bill that a House and Senate conference committee will forge early in 2008 stands to include plenty of initiatives for wildlife and habitat protection.

“Both the House and Senate versions of the farm bill call for keeping the Conservation Reserve Program at 39.2 million acres. That’s a key component and good news for wildlife, conservation and natural resources officials say, because CRP arguably has done more for habitat than any program in U.S. history.

“The big question is whether farmers will continue to buy into CRP and other conservation measures at a time of near-record commodity prices and increased interest in ethanol.”

The article noted that, “Like CRP, the wetland and grassland reserve programs pay farmers to develop and enhance habitat on marginal lands. WRP and GRP both were scheduled to ‘sunset’ with the current farm bill and needed to be re-authorized and re-funded, Link [Greg Link, assistant wildlife division chief for the North Dakota Game and Fish Department] said.

“The farm bill versions also tackle appraisal problems that hampered interest in WRP, especially in the northern U.S.

“‘There has been a problem with the way the value of WRP easements has been calculated,’ Stephens [Scott Stephens, director of conservation planning for Ducks Unlimited’s Great Plains Regional Office in Bismarck] said. ‘It reduced the payments for landowners, and it drove the interest way down.’”

In addition, the article pointed out that, “Also included in both versions of the farm bill is a new provision known as Sodsaver, which would discourage farmers from converting native grassland to cropland by removing their eligibility for federal disaster payments and crop insurance.

“Both Game and Fish and Ducks Unlimited have been advocates for Sodsaver. Native grasslands, such as those Sodsaver would protect, provide crucial habitat for ducks and other birds, Stephens said, along with grazing opportunities for livestock.”

Later, the article explained that, “A previous farm bill provision, known as Sodbuster, only required farmers to develop a plan to address erosion on grasslands they converted to cropland.

“‘In reality, (Sodbuster) hasn’t slowed conversion much and has proved to be rather ineffective,’ Stephens said. ‘That’s the real reason we were pushing for this Sodsaver provision, which we think will be more effective at reducing those conversions.’

“Stephens said the House version of Sodsaver isn’t quite as strong as the Senate’s because it only removes landowners’ eligibility for the federal disaster payments for two years; the Senate version makes them ineligible for an indefinite period.”

The article also pointed to the reality of higher market prices and noted this had some impact on conservation: “‘With high prices and good commodity support, folks are having to make choices on the landscape, and one of those is tearing up native prairie,’ Link of Game and Fish said. ‘That’s something we’re very concerned about, and it’s been happening both in North Dakota and South Dakota.’

“‘Obviously, grass around wetlands, any time you lose an acre of that, you’re reducing the fall flight of ducks.’

“Another good component of the farm bill, Link says, is the ‘Open Fields’ legislation that Sen. Kent Conrad and Rep. Earl Pomeroy, both D-N.D., worked to introduce in the Senate and House. Open Fields would back existing state programs to reward farmers and ranchers who open their land to hunting, fishing and other outdoors-related access.”

In editorial opinion regarding the Farm Bill, the editorial board at The Minneapolis Star Tribune opined yesterday that, “After a six-week impasse, the Senate passed a $286 billion farm bill that makes only minor changes to the bloated agricultural subsidy system that rewards rich farmers for being farmers. The Senate rejected an amendment proposed by Sen. Amy Klobuchar, D-Minn., that would have stopped subsidy payments to full-time farmers with adjusted incomes of $750,000, rather than the current cutoff of $2.5 million. The amendment, which needed 60 votes for passage, was backed by a 49-48 majority. A separate amendment that would have capped the payments themselves at $250,000, down from $360,000 now, also died in the Senate.

“That made it an early Christmas for lots of wealthy farmers and their elected representatives, including Sen. Blanche Lincoln, D-Ark. Lincoln threatened to hold up the entire bill unless Democratic leaders agreed to the 60-vote requirement. Arkansas is just one of the big agricultural states whose farmers will get a nice cut of the estimated $20 billion in federal subsidies this year. Even with high crop prices and increasing land values, two-thirds of the windfall will go to the wealthiest 10 percent of the country’s farms.”

(FarmPolicy.com Note: Due in part to higher market prices, the U.S. Department of Agriculture’s Economic Research Service has indicated that, federal subsidy payments this year are projected at about $12 billion. Payments totaled about $24 billion in 2005, anddropped to just under $16 billion in 2006. Since 2002, federal subsidy payments have only been at or above $20 billion one time, 2005. See related graph).

(FarmPolicy.com Note: Recall that “the definition of a farm employed by the USDA for data collection purposes is ‘any operation that sells a least one thousand dollars of agricultural commodities or that would have sold that amount of produce under normal circumstances.’” Some farm policy observers suggest that this is an overly broad definition of a “farm” and hampers the persuasiveness of arguments relating to federal payment distributions based on farm income).

The editorial noted that, “Although major changes in the subsidies system appear unlikely, there’s another chance for Congress to take a crack at the income and payment limits. In January the Senate bill will have to be reconciled with the House version, and President Bush has proposed significant subsidy caps.

“A key player in that work will be Rep. Collin Peterson, D-Minn., chairman of the House Agriculture Committee. Peterson said he would like to see some progress on subsidies, and he credited Klobuchar for creating some momentum with her amendment. But Peterson’s optimismwas guarded at best. ‘The administration still continues to push their ideas, but there’s no support in the Congress for it,’ he said.”

The Star Tribune also noted that, “‘It would be good if someday we get to the point where we don’t need farm payments,’ Peterson said. That day may be years off, but next month House and Senate conferees will have another chance to at least put stricter limits on subsidies for farmers who don’t need a taxpayer bailout to make a living.”

Ethanol - Acreage

Associated Press writer Tara LaCapra reported yesterday that, “Though the new energy bill requires increased ethanol usage, the industry may still be weighed down by overcapacity issues and high corn prices that have plagued it this year.”

The article explained that, “Legislation passed on Dec. 19 requires that 9 billion gallons of ethanol be blended next year. The industry will surpass that before the end of the first quarter, according to Banc of America Securities analyst Eric Brown. There will be 13.4 billion gallons of annual production capacity by the end of 2008 if plant construction continues on schedule.

“Brown and other analysts expect corn prices to keep climbing regardless of what happens to ethanol. There is also a severe lack of infrastructure, because the corrosive fuel cannot be transported along the same pipelines as gasoline.

“‘We expect ethanol margins to remain under pressure due to supply increases, logistical impediments … and imports,’ Brown said in a note on Dec. 18, the day before President Bush signed the legislation.”

The AP article also noted that, “Corn ethanol is a ‘stepping stone’ to cellulosic, Calyon Securities analyst Kelly Dougherty said in a note Thursday. She expects the increased renewable fuel standard to lead to ‘continued infrastructure build-out, opening of new markets, and increased discretionary blending along the path to commercialization of cellulosic which should support higher ethanol prices.’

“But there are other significant obstacles to meeting that goal, not least of which is devising a profitable method of producing cellulosic ethanol. Other challenges include growing enough feedstock without harming the environment and efficiently transporting the fuel component to refineries and fuel pumps across the U.S.”

A separate AP article from yesterday discussed potential acreage shifts when farmers plant their crop this spring. “A shift from corn to beans may be inevitable, given the context. U.S. farmersharvested a record 13.1 billion bushels of corn this fall on nearly 93 million acres planted, in many cases cutting their soybean acreage for corn’s sake to take advantage of high prices fed by demand for ethanol, the corn-based fuel additive,” the article said.

“Now, many observers see U.S. farmers moving 4 million to 6 million of those corn acres back into soybeans to take advantage of prices that have soared for that commodity, lately beyond $11 a bushel — a price not seen since the early 1970s.”

The article noted that, “To Darrel Good, a University of Illinois market specialist, guessing what farmers will do with their acres is foolhardy.

“‘I don’t think there’s any basis for knowing that at this point,’ he said. ‘Farmers at the margin will make up their minds late. To make specific forecasts right now, I think, borders on the insane.’”

Later, the article stated that, “A recent University of Illinois study that took in such expenses as seed, fertilizer, chemicals, fuel, labor and machinery repair projected the cost of growing corn was $330 an acre. The cost for soybeans? Only about $200 an acre.

“Throw in the lofty price of soybeans — lately fetching $10 to $11 a bushel compared to the$6.50 to $7 price a year ago — and the potential returns can be hard to ignore.

“Still, there’s demand for both crops. U.S. inventories of soybeans, adequate last year to weather the pullback in acreage, will need to be replenished next year. And Good says U.S. corn exports are expected to stay strong as Chinese exports continue declining, helping keep corn prices robust.

“‘The market has to say, ‘OK, how much corn do we need and what price of corn does it take to get that many acres?’’ considering the input costs, Good said. ‘That judgment will be unfolding over the next several months.’”

EU Corn Issue

New York Times writer Elisabeth Rosenthal reported on Wednesday that, “A proposal that Europe’s top environment official made last month, to ban the planting of a genetically modified corn strain, sets up a bitter war within the European Union, where politicians have done their best to dance around the issue.

“The environmental commissioner, Stavros Dimas, said he had based his decision squarely on scientific studies suggesting that long-term uncertainties and risks remain in planting the so-called Bt corn. But when the full European Commission takes up the matter in the next couple of months, commissioners will have to decide what mix of science, politics and trade to apply. And they will face the ambiguous limits of science when it is applied to public policy.

“For a decade, the European Union has maintained itself as the last big swath of land that is mostly free of genetically modified organisms, largely by sidestepping tough questions. It kept a moratorium on the planting of crops made from genetically altered seeds while making promises of further scientific studies.”

The article added that, “But Europe has been under increasing pressure from the World Trade Organization and the United States, which contend that there is plenty of research to show such products do not harm the environment. Therefore, they insist, normal trade rules must apply.”

Keith Good