Reuters writer Christopher Doering reported yesterday that, “President George W. Bush opposes raising taxes to pay for increases in several programs in the new U.S. farm law, the top U.S. agriculture official said on Wednesday, as he underscored crafting a new farm bill as his top priority while in office.

“Agriculture Secretary Ed Schafer, in his first sit-down with reporters since he was confirmed on Monday, said President Bush has told him now is the time to act on farm policy.”

The article noted that, “The White House has threatened to veto the five-year, $286 billion bill if it raises taxes or fails to end crop subsidies to the wealthiest Americans. Negotiators from the House and Senate are poised to write a bill blending legislation from each chamber.

“Schafer said Bush strongly opposes a provision in the House and Senate farm bill that pays for larger public nutrition, biofuel and land stewardship programs. Congress said it gets the billions in new revenue by closing loopholes, but the administration said it amounts to tax increases.”

With respect to a potential reversion to the permanent 1949 Farm Bill statute, Mr. Doering explained that, “House Agriculture Chairman Collin Peterson has said that unless the House and Senate can come to an agreement on a new farm bill soon, supports for milk, cotton and grain would double from current rates as specified in a 1949 law. Peanuts, rice, sugar and soybeans are not guaranteed a safety net.

“Schafer said reverting back to the 1949 law would have ‘huge ramifications’ in delivering programs, in the price of food and in the ability to deliver nutrition programs.

“‘This is a very serious situation if it were to happen,’ said Schafer. ‘I’m sure Representative Peterson, when he becomes aware of the ramifications of allowing that to happen, will see the proper course of action and not allow it.’

“Peterson responded by saying he was fully aware of the ramifications, but added: ‘If we can’t get a bill signed by the president, we will have permanent law, not an extension of the current farm bill.’”

Peter Shinn of Brownfield provided more perspective on the issue of reverting to the 1949 law yesterday, and noted that, “There’s been some recent talk by prominent lawmakers about the possibility of letting the current farm bill expire and letting the underlying 1949 farm law kick back in. Just last week, House Agriculture Committee Chairman Colin Peterson suggested a return to the 1949 law might not be the worst thing in the world.

“But Nebraska Senator and fellow Democrat Ben Nelson told Brownfield Wednesday he doesn’t think Peterson’s remarks were made in earnest. And according to Nelson, reverting to the 1949 farm law probably won’t happen, though he wouldn’t rule anything out.

“‘There are all kinds of possibilities,’ Nelson said. ‘I think Collin’s having a little sport, maybe, of throwing that our as a possibility, but maybe he’s deadly serious.’

“Either way, Nelson said Congress is looking to new U.S. Ag Secretary Ed Schafer to help find a compromise on the farm bill. Bush administration officials have repeatedly threatened a farm bill veto because of the revenue-generating provisions in both the House and Senate versions of the measure.”

Meanwhile, DTN Political Correspondent Jerry Hagstrom reported yesterday that, “Agriculture Secretary Ed Schafer said Wednesday that the Bush administration will not compromise with Congress on the use of tax measures to pay for the farm bill, but he will analyze whether the administration’s position on payment limits should be softened.”

Mr. Hagstrom added that, “Democrats say those tax measures close loopholes, the White House says they are tax increases and congressional Republicans are split. Schafer said he did not know if the administration would favor cutting the increases in food stamps, conservation programs or other programs that would be funded through the tax measures. ‘The important issue is revenue versus expenditures,’ Schafer said. ‘Do you want to raise taxes so government can spend more money?’”

The DTN article also stated that, “Schafer added, however, that he is not sure the current administration’s positions on farm subsidy dollar limits and a ban on subsidies to farmers who make more than $200,000 in adjusted gross income should be final. Schafer is certain smaller farmers need subsidies more than bigger farmers and that taxpayers are demanding limits on subsidies to wealthy farmers. However, he said there are many ‘intricacies’ to the payment limits issue because some farmers produce high value-added crops on limited acreage but also have high input costs.

“President Bush has not asked for his recommendation on payment limits, according to Schafer, but if conclusion is reached, ‘I’ll be fighting for the number.’”

Philip Brasher, writing yesterday at The Des Moines Register Online, reported that, “The new agriculture secretary, Ed Schafer, says there is no room for compromise in the administration’s insistence on funding the next farm bill without new tax revenue.”

The Register article stated that, “Lawmakers say the veto threat has made the funding issue the biggest obstacle to finishing work on a new farm bill.

“The administration also is at odds with lawmakers over restricting eligibility for farm payments. The administration says subsidies should be cut off to anyone with more than $200,000 in annual income. Lawmakers say that limit is too low.

“Schafer, a former North Dakota governor, said that he hasn’t made up his mind on what the right number should be.

“‘Just saying this number or that number is a simple thing to do but there is a lot of ramifications deep within that. I need to understand that better and come to my own conclusion,’ he said.”

Note also that Mike Soraghan reported yesterday at The Hill Online that, “House liberals are threatening to withhold their support of a carefully negotiated farm bill if it doesn’t make hikes in anti-hunger programs permanent.

“Rep. James McGovern (D-Mass.) and other members of the Congressional Progressive Caucus organized a campaign to demand that House Agriculture Committee Chairman Collin Peterson (D-Minn.) push for permanent funding increases for food stamps and other programs when the farm bill goes to conference committee.

“‘A final conference agreement that sunsets and underfunds improvements in the nutrition title should be unacceptable,’ caucus members wrote in a ‘Dear Colleague’ letter.”

Mr. Soraghan noted that, “It could make negotiators’ work trickier, as the Bush administration has already threatened to veto the bill because of the tax change House negotiators used to fund the increase in anti-hunger programs sought by liberals. Moving the farm bill this year is a top priority for Speaker Nancy Pelosi (D-Calif.), who wants to protect vulnerable Democrats who represent rural and more conservative districts.

“Both the House and Senate would increase funding in the farm bill nutrition title for food stamps and an emergency food assistance program that helps fund food banks.

“But the House made the increases ‘permanent’ by funding them through the 10-year budget window. The House ‘paid’ for the added expense by ending a tax benefit for foreign companies, which led many House Republicans, even from rural districts, to vote against the farm bill on the House floor.”

The article added that, “The Senate did not end the foreign tax benefit, and was only able to pay for increased funding for food stamps and assistance through a five-year budget window. That means that when the farm bill comes up again in five years, it will not be included in the baseline, which makes it more likely funding increases will then end.”

Also yesterday, the “Washington Insider” section of DTN (link requires subscription) noted that, “The White House has made it clear that Agriculture Deputy Secretary Chuck Conner will continue to lead the administration’s farm bill campaign even as new Agriculture Secretary Ed Schafer takes over as head of the department.

“Of course, no one expects that Schafer will have no role as negotiations between the administration and Congress continue over what could be a month or two. President Bush himself recognized the importance of Schafer’s presence in the process when the president said in a statement that Schafer ‘will work with Congress to pass a responsible farm bill that will provide a safety net for farmers and protect our lands and the environment, while at the same time ensuring federal tax dollars are spent wisely.’”

Deputy Sec. Conner delivered comments on the Farm Bill yesterday at the American Enterprise Institute in Washington, D.C.; in part, Dep. Sec. Conner stated that, “We object very strongly to the tax increases in both versions of the bill that they rely upon to fund new and expanded programs. We also don’t believe that now is the time to be raising trade-distorting target prices and loan rates on our major crops as they do in both bills in nearly 80 percent of the cases.

“This is a step away from reform that simply, in my opinion, makes absolutely no sense. I like to describe it as painting a bulls’ eye on the American farmer’s back. At a time when we have record exports, record farm income, tremendous prices, optimism that we have not seen in American agriculture probably in a generation-we do not need a bulls’ eye on our back.

“What we have been saying all along is that this farm bill must be a vehicle for reform, that we must set our own agricultural policies, not set agricultural policies that will ultimately be dismantled one piece at a time by the challenges of our trading partners. The reward for choosing reform lies beyond our borders where the rapid economic growth in developing countries is creating millions of new middle class consumers who are buying prepared foods, buying more dairy products, buying more beef, pork, poultry in record quantities.”

The main focus of Dep. Sec. Conner’s remarks was on trade, and during yesterday’s speech, Conner alluded to themes that have been expressed recently by EU Trade Commissioner Peter Mandelson regarding market prices and decreasing levels of farm subsidy outlays.

Specifically Conner stated that, “The new Energy Bill, which Congress passed and President Bush signed last month, sets a goal of producing 36 billion gallons of renewable fuel by 2022. I’m reminded, that is just 15 years from now.That means that we will have an even stronger floor under our existing demand for those crops over the next several years to come. All these changes within the marketplace have affected our traditional support programs for our farmers as well. As prices have climbed, the funds committed to price support and marketing assistance programs for our growers of our major commodity crops have dropped, and dropped considerably. They fell last year, and we expect them to fall considerably again this year.

“These programs of course and the level of funding that they receive are one of the more contentious issues under discussion in the Doha talks.”

Prices

With respect to commodity prices, a press release (“Prices For Key U.S. Crops Remain High, Supplies Tight”) issued yesterday by the American Farm Bureau Federation (AFBF) stated that, “Prices for key U.S. crops such as corn and soybeans are likely to remain at high levels this year, as competition for acreage to plant these crops continues, according to the latest analysis of government data by the American Farm Bureau Federation.

“‘Crop supplies in 2008 will remain tight, prices will remain high and strong competition will continue between corn and beans for acreage,’ according to AFBF Senior Economist Terry Francl. ‘Thetight supply-and-demand balance sheet that’s been in place for nearly all crops will continue for at least another year.’

“Francl analyzed the Agriculture Department’s Winter Wheat Planting Report, Grain Stocks Report and World Agricultural Supply and Demand Estimates (WASDE) report to develop his crop outlook.”

Later, the AFBF press update noted that, “Given these issues, Francl believes corn acreage will decline, ‘but not as much as some people think,’ to 89.5 million acres in 2008. That would be a decline of 4.4 percent from 2007. Soybean acreage will expand to 69.5 million acres, an increase of a little more than 9 percent from 2007.

“Francl predicts wheat acreage will increase to 62 million acres, up almost 3 percent from last year, while cotton acreage will continue to decline, to 9.5 million acres, which would be a drop of a little more than 12 percent from a year ago.”

Lauren Etter, writing in today’s Wall Street Journal, reported that, “With corn, wheat, soybeans, barley, sunflowers and other grains selling at or near record prices, U.S. farmers are preparing for a potentially historic planting season. A rush to make biofuels from crops and soaring demand for grains in China, India and other emerging markets have pushed upgrain prices world-wide, helping drive food prices higher.

“Just yesterday, Kraft Foods Inc. — echoing similar announcements earlier in the week by Tyson Foods Inc. and Hershey Co. — said it will raise prices this year because of higher costs, and Kellogg Co. said its fourth-quarter profit fell because of higher commodity prices.

“The shift has created huge opportunities in the Farm Belt as growers make their annual decisions about which crops to plant, how much land they need, which fertilizer and pesticides to buy, and how much of their crop to sell ahead of time on futures markets.”

Ms. Etter also explained that, “But there are risks, too. Farmland prices have climbed more than 20% over the past year in many Midwestern states, so the many growers who lease land are shelling out higher rents. Some seed prices have jumped 30%, and fertilizer prices have doubled nearly across the board. Nocturnal thieves are stealing grains from unlocked bins. And ever looming is the prospect of a drought, which could push prices even higher, sending shock waves through global grain markets.

“Farmers are left to wonder: Could the grain boom be another bubble like dot-com and housing? Crop prices have been bouncing up and down in recent weeks: Wednesday of last week, corn trading on the Chicago Board of Trade dropped nearly 20 cents a bushel, the exchange-traded daily limit. The following day,corn was back up 20 cents, to nearly $5 a bushel, about where the March contract closed yesterday.”

The Journal article indicated that, “Keith Collins, former chief economist at the U.S. Agriculture Department, recently said he expected that planted corn acres in the U.S. would decline as much as 8% this year, while soybean acres would rebound to 70 million acres, up about 10% from last year.

“Most agricultural economists agree that key factors underlying the farm boom are likely to persist. ‘Once people enter the middle class and move up the income and food ladder, they rarely regress,’ says Rich Feltes, senior vice president and director of commodity research at MF Global.”

Biofuels

With respect to variables impacting ethanol profitability, Gregory Meyer reported in today’s Wall Street Journal that, “Crude-oil futures rose following another U.S. interest-rate cut…[L]ight, sweet crude for March delivery rose 69 cents, or 0.8%, to settle at $92.33 a barrel on the New York Mercantile Exchange. This is the fifth consecutive rise for the front-month contract.”

The article stated that, “Amid concerns an economic slowdown would chill oil demand, Nymex oil futures have eased back from their $100 highs earlier this month. The Fed’s moves in the last two weeks have since raised hopes that the U.S. may steer clear of a recession.”

And Associated Press writer John Wilen reported today that, “Get ready for another surge in gasoline prices.

“Experts are predicting pump prices, which jumped by almost a dollar a gallon in each of the last two springs in many parts of the United States, will spike again this year as refiners and gas stations switch from winter- to summer-blended fuels.”

The AP article stated that, “The federal government long ago required refiners to boost the oxygen content of summer-blend gasoline to make it burn more completely, a problem that was solved by adding MTBE and, more recently, ethanol.

“But ethanol also has a high evaporation rate, so refiners increasingly have turned to alkylate, which Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J., calls the ‘magic bullet’ in making summer gasoline.”

DTN writer Todd Neeley reported yesterday (link requires subscription) that, “While U.S. Energy Secretary Sam Bodman said Tuesday that the U.S. ethanol industry was close to standing on its own and may no longer need import tariffs, one industry spokesman said the tariffs are still needed to keep the industry competitive with the likes of Brazil.

“A Reuters story Tuesday reported that the president may propose changing the 54-cent-a-gallon tariff on U.S. ethanol imports as part of the White House’s 2009 budget.”

Mr. Neeley stated that, “Matt Hartwig, spokesman for the Renewable Fuels Association, the ethanol industry’s largest representative, said those people who want to remove the tariff are missing the point.

“‘I’m not sure what Secretary Bodman was talking about,’ Hartwig said. ‘Anything having to do with the tariff must be addressed by Congress. The administration has absolutely no say in the matter.’”

Keith Good

Reuters news reported yesterday that, “Brazil’s President Luiz Inacio Lula da Silva proposed to U.S. President George W. Bush a meeting of world leaders to help conclude global trade talks, a government spokesman said on Tuesday.

“Lula telephoned Bush on Tuesday and suggested the meeting take place in April, when both leaders are expected to be in Europe, Marcelo Baumbach, the president’s spokesman, told reporters.”

The article explained that, “Bush said he would study the proposal as well as an invitation by Lula to attend a biofuels conference in Sao Paulo in November, Baumbach said.

“There was renewed impetus in the World Trade Organization’s Doha round of trade talks, Lula said during the 20-minute conversation and urged Bush to help work toward its successful conclusion, according to Baumbach.”

Also yesterday, Dow Jones News writer Kenneth Rapoza reported that, “Agricultural trade cannot be the deciding factor for the passing of the Doha Development Agenda of the World Trade Organization, a top European Union commissioner said Tuesday, the local Estado newswire reported from Geneva.

“Marianne Fischer Boel, the E.U.’s agricultural commissioner, said Europe cannot be the only region to make concessions for Doha to pass, and called upon Brazil to do the same.

“Following WTO pressures, Europe has cut back its sugar market subsidies, for instance, causing millions of dollars in sugar refining business to flee the E.U. and head to the Middle East as a result.”

The article noted that, “Boel says that Brazil shouldn’t be considered a developing market economy when it comes to agriculture.”

Meanwhile, Reuters writer Doug Palmer reported on Monday that, “Washington is under pressure to offer deeper farm subsidy cuts in the [Doha] negotiations, and is insisting advanced developing countries like Brazil and India do their part by opening their markets to more foreign farm and manufactured goods.

“The chairmen of the World Trade Organization’s agriculture and manufactured goods negotiating groups in Geneva are expected to issue revised texts in coming weeks that could set the stage for a final deal, or expose deep remaining differences in the talks.”

In other Doha news, the European Commission (EC) issued a news release yesterday, which stated that; “EU Trade Commissioner Peter Mandelson met with new Australian Trade Minister Simon Crean in order to discuss the Doha Development Agenda and recent developments in Davos. They reiterated their common commitment to a successful conclusion of the global trade round. The two also discussed issues on the bilateral trade agenda of the EU and Australia.”

The EC update added that, “Speaking on the possibilities of a successful conclusion of the Doha Round, Mandelson praised strong support from Australia, saying: ‘We both agree that 2008, and especially the weeks and months ahead, are going to be absolutely crucial. This is very possibly going to be our final opportunity to complete a successful, ambitious global trade deal. We are determined to work very hard with our fellow trade ministers. Australia and the European Commission always work very very closely together. Now we have the endgame in sight’”.

Interestingly, food prices also entered the analysis regarding the prospects of a successful Doha outcome; the press release indicated that, “Answering a question, Mandelson commented on the impact of food price rises to enable a move forward in the Doha negotiations: ‘I think it helps. I think we have seen that in the constructive atmosphere surrounding agricultural negotiations, which is in no small part due to reduced pressure on farmers. Market conditions have changed since the beginning of the trade talks. Prices for all the main agricultural commodities such as cereals, meat, and dairy have been higher than expected in recent years and this is projected to continue, according to the OECD, until 2016.’ He continued: ‘But the consequences are that the arguments in favour of border protection and market price support are not what they were when we started out on the long Doha journey. Take for example US countercyclical payments: with current and prospective prices, the US should have little difficulty in cutting OTDS to within the Falconer ranges. In Europe, similarly, we have seen a marked reduction in the need for export subsidies in recent years’”.

In a more detailed look at farm subsidy outlays in the U.S., recall that the U.S. Department of Agriculture’s Economic Research Service estimates that, “Total direct payments by the U.S. government to U.S. farmers are expected to total $12.1 billion in 2007, down from the $15.8 billion paid out in 2006 (table 8). This would be nearly 26 percent below the previous 5-year average.”

“Countercyclical payments are forecast to decrease from $4.0 billion in 2006 to $1.2 billion in 2007;” and, “Marketing loan benefits—including loan deficiency payments, marketing loan gains, and certificate exchange gains—are projected at $1 billion in 2007, down from $1.8 billion in 2006.”

And with respect to the longer-term, recall that ERS has noted in their agricultural baseline projections that, “Longrun developments for global agriculture reflect increased demand for biofuels, particularly in the United States and the European Union. U.S. agricultural projections reflect large increases in corn-based ethanol production, which affects production, use, and prices of farm commodities throughout the sector.”
ERS added that, “Combined with increases in domestic demand, particularly related to growth in ethanol production, the results are generally higher market prices and cash receipts. Rising production expenses and lower government payments offset some of the gains in cash receipts and other sources of farm income, but overall net farm income remains strong through the projections.”

Prices

With respect to commodity prices, Tom Polansek reported in today’s Wall Street Journal that, “Solid demand for U.S. spring wheat should continue to support Minneapolis Grain Exchange wheat futures in the near term, even though prices are already at record levels,analysts said.

“Nearby MGE March spring wheat Tuesday became the first wheat contract to crack $13 per bushel at any U.S. futures exchange. The contract settled at its daily, exchange-imposed trading limit of 30 cents higher, to $13.27, after closing limit up in the previous three day sessions.

“Wheat prices are sharply above corn and soybean prices. MGE March wheat is 60.75 cents above Chicago Board of Trade March soybeans and $8.26 above CBOT March corn. Soybeans, which usually command a strong premium to wheat, also are trading at historic highs.”

The Journal article added that, “More than halfway into the 2007-08 marketing year, U.S. hard red spring wheat export sales have already surpassed the Agriculture Department’s estimate for the year. Strong export sales in the week ended Jan. 17, announced Friday by the USDA, pushed total business for the year above 277 million bushels, topping the government’s target of 275 million bushels, [Brian Henry, broker at Archer Financial Services] said.

“One benefit importers have going for them is weakness in the U.S. dollar. For instance, on Jan. 23, the dollar hit a two-and-a-half-year low against the yen. The Japanese are a big buyer of U.S. spring wheat.”

Later, the article stated that, “The USDA reignited a land battle among corn, soybeans and spring wheat when it released supply/demand and production reports Jan. 11. MGE March wheat has climbed $2.9425 since the day before the reports were issued.”

Holman W. Jenkins, Jr. provided an interested perspective on food production and prices in a column that was published on the opinion pages of today’s Wall Street Journal.

Mr Jenkins stated that, “History records that previous commodity booms were not followed by mass starvation, resource wars and the end of civilization. John Atkin is out to make sure it doesn’t happen again.

“An agricultural zoologist by training, he serves as chief operating officer for crop protection at Switzerland’s Syngenta, a competitor to the U.S. giant Monsanto in the controversial business of agricultural technology.

“Of the recent surge in prices for all manner of foodstuffs, he says don’t blame biofuels. Coffee and frozen orange juice are up, and they don’t go into your gas tank or compete for land with ethanol-related crops. Iron ore, copper and most nonfarm commodities are up too. And whatever the errors of Alan Greenspan and Ben Bernanke, the biggest factor may be a simple failure of optimism about the global economy. Every CEO’s mental map now includes India and China, yet somehow the whole spectrum of natural resources producers failed to invest sufficiently to meet the demand of several hundred million new consumers.”

The Journal column noted that, “Mr. Atkin cites a United Nations forecast that, by 2030, food production will have to have increase 50%, partly to feed a bigger world population and partly to supply the richer, more varied diets demanded by the newly affluent of the developing world.

“‘Agriculture can respond to this,’ he says. ‘Absolutely it can respond to this.’”

Regarding production, Mr. Jenkins indicated that, “Only Brazil offers sizable acreage of uncultivated lands, in its scrubby central and western provinces. Transportation costs were once prohibitive, but with high crop prices, enterprising farmers are bringing virgin lands under the tractor. Who’s financing these sodbusters? ‘We’re financing them,’ says Mr. Atkin, slightly astonished by his own answer. Seed and agrochemical suppliers have been letting their receivables go unpaid 200 or 300 days, serving effectively as banks.

“Also making a contribution will be Russia and Ukraine, where modern techniques will dramatically improve productivity. But the heaviest lifting will be done by technology. Syngenta, based in Basel, is carving out a different approach than Monsanto, involving chemistry as much as gene technology, and working particularly closely with farmers to adapt its formulas to local conditions.”

And with respect to biofuels and new ethanol technology, the Journal article noted that, “On biofuels, Mr. Atkin doesn’t doubt that cellulosic ethanol, made from agricultural waste and weeds, will one day make a cost-effective and climate-friendly contribution to transportation fuels. In the meantime, however, Washington is keen to shovel protectionism and subsidies at corn ethanol, which is neither cost-effective nor climate friendly, so Syngenta is working up a genetically modified corn that already contains a key enzyme additive, cutting a step from the ethanol manufacturing process.”

Ethanol Tariff

However, on the ethanol tariff issue, Keith Johnson posted an update yesterday at the Wall Street Journal’s Environmental Capital Blog, which stated that, “Energy Secretary Samuel Bodman raised eyebrows with tantalizing comments about U.S. ethanol policy and a troubled carbon-capture project.

“At a luncheon with biofuel industry executives hosted by the U.S. Chamber of Commerce, Mr. Bodman was asked about the prospects for extending tariffs on imported ethanol.

“‘I think this industry is pretty close to being able to stand on its own,’ he said. President Bush’s budget proposal, due next week, ‘will start to deal with that question,’ Mr. Bodman said, without further elaboration.”

A Reuters news article from yesterday (Via DTN) flushed out some more detail on this development; and stated that, “U.S. Energy Secretary Sam Bodman hinted on Tuesday that the Bush administration’s new government budget for the 2009 spending year may propose changing the U.S. tariff on ethanol imports.

“Speaking at the U.S. Chamber of Commerce, Bodman said the White House’s 2009 budget, which will be sent to Congress next Monday, ‘will start to deal with that question’ of whether the 54-cent-a-gallon import tariff should be allowed to expire at the end of this year or whether it should be renewed.”

The article added that, “Bodman would not confirm whether the Bush administration will ask Congress to begin phasing out the import tariff or the subsidy for domestic producers. But he suggested the U.S. ethanol industry could survive with less government help.

“‘I would just say I think that there are advantages to having had the kind of both subsidies and tariffs that have helped protect this industry. I believe that, the best I can tell, this industry is pretty close to being able to stand on its own,’ Bodman said.

“The tariff on ethanol imports is set to expire at the end of this year but could be renewed. U.S. ethanol blenders get a separate 51-cent-a-gallon tax credit through 2010.

“Talking with reporters later, Bodman would not clarify whether the administration will propose to reduce or eliminate the ethanol subsidies or the protective tariff.

“‘I’m not going to speak to that. We will announce the budget next week,’ he said. ‘The budget will speak for itself.’”

On the cellulosic ethanol issue, the Associated Press reported yesterday that, “The Energy Department awarded $114 million in grants Tuesday to build four small-scale biorefineries in Missouri, Oregon, Colorado and Wisconsin, hoping to demonstrate production of cellulosic ethanol.

“The government grants will cover about a third of the cost of the projects.”

Farm Bill

The Associated Press reported on Monday that, “South Dakota’s lone U.S. House member, Stephanie Herseth Sandlin, says farmers are growing increasingly frustrated over the lack of progress toward a new Farm Bill.

“She says that farmers are making their planting plans and are anxious to see the contents of new farm legislation, which has passed both houses and awaits conference committee action.”

Meanwhile, a Dow Jones news story from yesterday (via DTN) stated that, “New U.S. Department of Agriculture Secretary Ed Schafer told reporters Tuesday he spent much of his first day in office getting briefings and meeting with President George W. Bush on the farm bill.

“There are still sharp divides between Congress and the White House on farm bill policy, Schafer told reporters after addressing USDA employees in a speech.”

Concluding, the Dow Jones article noted that, “When asked whether there was any talk of compromise on the farm bill during Schafer’s meeting with Bush on Tuesday, Schafer said no and that he was basically told to ‘go out and get it done.’”

A brief USDA audio report from yesterday by Gary Crawford noted that, “On his first full day as Secretary of Agriculture Ed Schafer met with President Bush on the Farm Bill.” To listen to this summary, just click here (MP3- about one minute).

And Tom Steever of Brownfield reported yesterday that, “Senator Charles Grassley disagrees with groups and individuals who would concede the expiration of the 2002 farm bill, therefore letting U.S. farm policy revert to the 1949 so-called permanent law.

“The Iowa Republican says the ‘49 farm bill is based on parity, which he says would bring the loan rate on corn to half the parity rate, or about $4.12 a bushel. He calls it unrealistic.

“‘Parity is based on 1914 to 1915 prices,’ said Grassley Tuesday, ‘and you know, this is the 21st Century, it’s not 1914 to 1915.’”

Keith Good

Last night, in his final State of the Union address, President Bush highlighted two issues relating to U.S. farm policy: Food Aid & Trade.

With respect to food aid, President Bush indicated that, “America is leading the fight against global hunger. Today, more than half the world’s food aid comes from the United States. And tonight, I ask Congress to support an innovative proposal to provide food assistance by purchasing crops directly from farmers in the developing world, so we can build up local agriculture and help break the cycle of famine.”

The administration’s Farm Bill proposal discussed the issue of cash purchases and food aid in more detail on pages 81 and 82.

“The Administration is very concerned about ensuring that food aid and famine prevention are effective and efficient and address the highest priority needs. Food purchased in the United States normally takes four months or longer to arrive at its destination. Food purchased locally, however, can reach beneficiaries within days or weeks in many cases,” the Farm Billproposal noted.

The proposal added that, “Under current law, P.L. 480 Title II may only be used to purchase and ship U.S. commodities. The current program is typically able to provide timely and effective assistance, but there have been several recent cases where P.L. 480 Title II could not be procured quickly enough and the U.S. either could not provide food, provided food late. Two notable cases in recent years have been Iraq in 2003 and the humanitarian crisis in Lebanon in 2006. The Administration would also have considered using this authority for the immediate response to the Asian tsunami in 2004, in southern Africa and Niger in 2005, and in East Africa in 2006.”

The proposal stated that, “The Administration proposes authorization to use up to 25 percent of the P.L. 480 Title II request to procure food from selected developing countries near the site of a crisis. This authority increases Administration tools to quickly meet emergency needs in the most effective way possible. Cash food aid will only be used in those cases where a rapid response is critical to saving lives. The majority of U.S. food aid will continue to rely on U.S. commodities.

“U.S.-grown food will continue to play the primary role and will be the first choice in meeting global needs. Local and regional purchases will be used judiciously where the speed ofthe arrival of food aid is essential. The Administration will be better equipped to deal with emergencies if our tools include cash that can be used to provide immediate relief until US commodities arrive or to fill in when there are pipeline breaks.”

With respect to trade, President Bush stated that, “On trade, we must trust American workers to compete with anyone in the world and empower them by opening up new markets overseas. Today, our economic growth increasingly depends on our ability to sell American goods and crops and services all over the world. So we’re working to break down barriers to trade and investment wherever we can. We’re working for a successful Doha Round of trade talks, and we must complete a good agreement this year. At the same time, we’re pursuing opportunities to open up new markets by passing free trade agreements.

“I thank the Congress for approving a good agreement with Peru. And now I ask you to approve agreements with Colombia and Panama and South Korea. (Applause.) Many products from these nations now enter America duty-free, yet many of our products face steep tariffs in their markets. These agreements will level the playing field. They will give us better access to nearly 100 million customers. They will support good jobs for the finest workers in the world: those whose products say ‘Made in the USA.’ (Applause.)”

In recent news regarding Doha, Chris Giles and Gillian Tett reported on Sunday at The Financial Times Online that, “Pascal Lamy, the director-general of the World Trade Organisation, insisted at the weekend that the politics were right to achieve a global trade deal this year.”

The article stated that, “His [Lamy’s] confidence was echoed in general terms by the big players in the trade talks, although no trade minister made any public commitment on anything specific. Peter Mandelson, the European trade commissioner, said: ‘If it is not concluded this year, it will not be concluded next year.’

“Susan Schwab, the US trade representative, said a deal was ‘doable’ in 2008. ‘The key is an outcome that is robust, ambitious and has a real impact on development.’ Kamal Nath, India’s trade minister, undertook to complete the round in 2008. ‘I promise I won’t say this next year,’ he said.

“Suggested compromises in the important areas of agricultural barriers, subsidies and industrial market access are under discussion by officials at the WTO in Geneva. Mr Lamy made clear that significant progress had to be made in weeks, not months, if an agreement was to be reached before a new US administration was sworn in next January.”

An AFP article from yesterday reported that, “Australia’s trade minister said Monday that despite ‘positive’ talks on the Doha trade round at the Davos World Economic Forum no deal on agriculture seemed imminent.

“‘It was a positive outcome from Davos; I think it did surprise people,’ Simon Crean told journalists on a visit to World Trade Organisation headquarters in Geneva.

“But he added that he ‘wouldn’t like to predict that we’re close (to a deal) on agriculture.’

“‘Let’s just see how the next couple of months unfold,’ the newly-appointed Labor Party minister said.”

A recent USDA audio update noted that, “A former top agriculture and trade official says, it’s a long shot, but there still could be a world trade agreement this year.” To listen to this brief audio segment with Gary Crawford and former U.S. Trade Representative Clayton Yeutter, just click here (MP3-about two minutes).

Meanwhile, Peter Shinn reported yesterday at Brownfield that, “President Bush made no mention of the pending farm bill. But he did threaten to veto any bill that included any tax increase, and the White House has characterized the revenue generating components of both the House and Senate versions of the farm bill as tax hikes. And President Bush did focus on specific provision of the farm bill he wants to see included, cash purchases of local food for foreign aid programs.”

Mr. Shinn also pointed out that, “And for the first time since 2004, President Bush didn’t specifically mention ethanol or biodiesel in his State of the Union Address. While repeating his support for clean renewable energy, President Bush instead called for research into clean burning coal technology and nuclear power.”

Secretary of Agriculture Ed Schafer

After being confirmed by the Senate yesterday, new U.S. Secretary of Agriculture Ed Schafer attended the State of the Union last night.

Reuters writer Charles Abbott reported yesterday that, “The Senate confirmed millionaire businessman Ed Schafer as U.S. agriculture secretary on Monday amid White House threats to veto a $286 billion farm policy bill.”

Mr. Abbott indicated that, “As secretary, Schafer will be in charge of deadlocked negotiations with Congress over the five-year farm bill. The administration says the bill must deny crop subsidies to the wealthiest Americans and not raise taxes. Lawmakers say without new revenue, they cannot pay for expansions of food stamp, land stewardship and biofuel programs.

“President George W. Bush said in a statement that Schafer ‘will work with Congress to pass a responsible farm bill that will provide a safety net for farmers and protect our lands and the environment, while at the same time ensuring federal tax dollars are spent wisely.’”

Mr. Abbott also explained that, “Schafer is the first agriculture secretary from the Upper Midwest since Bob Bergland in the Carter era. At the Agriculture Department, he will oversee 100,000 workers and have jurisdiction over public nutrition, crop subsidy and rural development programs as well as run the national forests.

“‘I hope Secretary Schafer will now be able to help us convince the White House to sign the new farm bill into law,’ said Sen. Kent Conrad, a North Dakota Democrat and a leader in writing the Senate farm bill.

“With no fanfare, Schafer was sworn into office by Vice President Dick Cheney shortly after the vote. He planned to speak to USDA employees on Tuesday afternoon.”

An Associated Press article from yesterday noted that, “The former North Dakota governor was confirmed by unanimous consent after members of the North Dakota delegation asked Senate Majority Leader Harry Reid, D-Nev., to move his confirmation quickly so Schafer can attend the State of the Union Monday evening as a member of President Bush’s cabinet.”

Farm Bill

In Farm Bill news, an item posted yesterday at AgNetOnline.com, included a very brief audio update that contained comments from Chuck Conner (then the Acting U.S. Sec. of Agriculture) regarding the possibility of a reversion of U.S. farm policy to the permanent 1949 statute.

To “[r]evert back to that time period would be the same as I guess in some ways almost going back to sort of a horse and plow kind of situation…its not relevant for today, going back to permanent law would be devastating for American agriculture on many fronts, devastating for the consumers of this country. I don’t really see it as being an option at this point.” (This audio segment is available here (MP3- about two minutes)).

Prices

The Associated Press reported yesterday that, “Wheat for March delivery jumped 30 cents to $9.63 a bushel; March corn added 4 cents to $5.0225 a bushel; March soybeans rose 10.75 cents to $12.5375 a bushel.”

And Matt Whittaker reported in today’s Wall Street Journal that, “CRUDE OIL: After starting the trading day with losses, futures closed slightly higher, supported by a stronger U.S. equities market and expectations that the Organization of Petroleum Exporting Countries will leave oil output steady at a Feb. 1 meeting. Light, sweet crude for March delivery settled 28 cents, or 0.3%, higher at $90.99 a barrel on the New York Mercantile Exchange.

“WHEAT: Prices rose to their day exchange-imposed trading limit of 30 cents a bushel as grain market prices are rising in an effort to lure farmers to plant either corn, wheat or soybeans this spring in the U.S. Chicago Board of Trade March wheat futures gained 30 cents a bushel to $9.63.”

University of Illinois Agricultural Economist Darrel Good noted yesterday (“Corn and Soybean Consumption Remain Large”) that, “On a daily basis, corn and soybean prices continue to be influenced by a large number of factors. These include the traditional fundamental factors of the rate of consumption and production prospects in various parts of the world. In addition, prices have been impacted by such factors as prospects for crude oil prices and U.S. and global economic prospects. The latter are often referred to as outside markets, but developments in these markets directly impact the potential demand for corn and soybeans.

“The one constant so far in the 2007-08 marketing year for both crops has been the generally persistent high rate of consumption.”

After more a more detailed look at current statistical indicators for corn and soybeans, Dr. Good noted that, “Corn and soybean prices will likely continue to be very volatile and influenced by a large number of factors. Until there is some evidence of a slowdown in use that reduces the needed increase in acreage in 2008 however, prices are likely to remain well supported.”

A Dow Jones news article from yesterday (Via DTN) reported that, “Corn usage remains strong despite the highest futures prices since 1996, and analysts are dubious whether the old market adage that ‘high prices will cure high prices,’ will occur in the near term.

“Chicago Board of Trade corn futures have recently rallied to over $5 per bushel on ideas that 2008 corn acreage will need to remain at high levels to supply enough of the grain to domestic and international customers, and in an effort to ration demand.

“One segmentof corn demand that shows no signs of slowing despite high prices is exports. On Friday, the USDA reported weekly U.S. export sales were 1.715 million metric tons for the week ended Jan. 17, with the majority of the sales made to Asian buyers.”

The article pointed out that, “Even with high corn prices, the USDA boosted its estimate of feed and residual use by 300 million bushels, to 5.95 billion bushels from 5.65 billion in January, signaling domestic demand is not expected to slow.”

Later, the Dow Jones article stated that, “Despite the high price of corn, ethanol producer margins have rebounded smartly from poor prices last fall. Demand has firmed, allowing the industry to absorb the costs of higher corn prices, an analyst said.

“‘Current ethanol producer operating margins are near breakeven and plants are continuing to produce ethanol,’ said Dave Wilson, analyst and vice president at Morgan Stanley.”

The article added that, “Not every ethanol analyst agrees.

“Corn is just one factor in the equation and given current ethanol prices, the short answer is unless there is a drought and corn goes to $8.00 per bushel this summer, corn demand will not decline from ethanol producers,’ said Ian Horowitz, ethanol analyst at Soleil Securities in New York.

“The price of ethanol and its relationship to gasoline and crude oil are more important than the price of corn, said Horowitz.

“‘Corn could go to $15 per bushel, but if the price of ethanol is high enough, it could absorb it,’ he said. ‘Currently ethanol prices are very strong and the industry is making money even at $5-per-bushel corn. Ethanol prices are more dependent on the price of gasoline and crude oil, with corn only one variable in the ethanol pricing mix.’

“There shouldn’t be any dialing down of industry capacity unless something drastic happens - either corn rallies significantly or ethanol prices decline, or a combination of both, and right now that is not occurring, said Horowitz.”

Keith Good