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