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