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