Washington Report

9/16/11

House Subcommittee Hears Feed Industry, Livestock/Poultry Groups on Feed Challenges

Representatives of the feed industry, beef, chicken, turkey, dairy and swine producers told the House Agriculture Committee’s subcommittee on dairy, livestock and poultry this week that record low feed availability and historically high feed costs are dramatically driving up production costs, causing significant herd and flock liquidation, pushing consumer food prices higher and contributing to industry consolidation. Invited witnesses at the hearing included Phil Greene, vice president, Foster Commodities, Fresno, Calif., who testified on behalf of the American Feed Industry Assn. (AFIA). Greene, who heads the commodities/feed production division of Foster Poultry Farms, one of the largest feed companies in the western United States, told the subcommittee there are three major factors contributing to reduced feed availability and high feed prices: Reduced supplies of feed grains and oilseeds based upon competition with ethanol for corn, record exports, high energy costs and lower production due to weather and disasters; antiquated acreage-idling programs, including the Conservation Reserve Program (CRP) which take valuable arable acres out of production, and a failure by the Commodity Futures Trading Commission (CFTC) to define and set speculative position limits for institutional speculators whose futures market activity has robbed bona fide hedgers of their price discovery and risk protection capabilities. All of the witnesses agreed that corn for ethanol may be the biggest on-going challenge to feed availability, and called on Congress to consider creating authority to the administrator of EPA to waive a portion of the Renewable Fuel Standard (RFS) for corn ethanol when USDA’s estimate of the stocks-to-use ratio drops below certain levels. Also testifying were representatives of the National Cattlemen’s Beef Association, National Chicken Council, National Turkey Federation, National Pork Producers Council and California Dairies.

RFA Not Happy About House Feed Availability Hearing

The Renewable Fuels Association (RFA) attacked the House Agriculture Committee’s subcommittee on livestock, dairy and poultry on feed availability this week as a “stacked deck hearing” for inviting “a wide range of livestock and meat processing interests, but not (including) anyone from the nation’s ethanol, corn growing or feed milling industries.” It was an odd accusation as AFIA’s witness, Phil Greene, Foster Commodities, was part of a panel that included cattle, pork, dairy and poultry producers, and the only “meat processing interests” were in the audience. Further, committee staff confirmed no ethanol, corn grower or other biofuels organization requested to testify at the September 14 hearing on issues impacting feed availability and the impact of feed supplies and prices on livestock and poultry production. “Today’s hearing will do little more than provide a soapbox for those that falsely present domestic ethanol production as creating a choice between food and fuel,” RFA President Bob Dinneen said. While all of the witnesses cited the competition between ethanol and feed manufacturing as a major factor in the run up in corn prices since the Renewable Fuels Standard (RFS) was instituted in 2006, these groups also talked about arbitrary acreage reduction programs which idle arable acres needed for production and institutional speculators in the futures markets who rob the markets of the price discovery and hedging protections they’re meant to provide. When asked about distillers dried grains (DDG), a byproduct of ethanol refining, the producer group witnesses explained that while the beef and dairy can best utilize DDG, poultry and swine feeders find them of limited value. Further, the producers stressed DDG are not a replacement for corn, and as a byproduct of corn are priced almost as high.

House Starts Rule Roll-Back Effort; NCFC Calls for Two-Year Reg Moratorium

In the same week the National Council of Farmer Cooperatives (NCFC) called on Congress to enact a two-year moratorium on all discretionary and non-essential regulatory action that could increase the cost of ag production, the House began its process of rolling back rules it considers to be job killers. The first action was House passage of a bill that would nullify a National Labor Relations Board (NLRB) action that stopped the Boeing Corp. from relocating a production plant from Washington State to South Carolina. The bill approved by the full House would prohibit the NLRB from ordering an employer to restore, shut down or relocate a business operation. The NCFC action identifies “a broad range of regulatory actions—both pending or in the pipeline and coming soon to a farm near you” across the entire federal government that will increase costs and reduce margins for the group’s 2,500 cooperative members. Details of the NCFC proposal can be found at http://bit.ly/mQSdQ8. Next week the House will take up a separate bill to delay EPA power plant boiler regulations, even though the agency this week said it’s postponing indefinitely the rule that affects power plants and oil refineries and greenhouse gas emissions. Scheduled for similar action later this year are EPA rules impacting coal ash, greenhouse gases generally, farm dust and the NLRB’s recent proposal to “streamline” union elections, which business said is simply the NLRB doing what unions could not achieve in Congress.

2011 Corn Ending Stocks at 5.3%: WASDE Estimate

The stocks-to-use ratio for 2011-2012 crop corn is estimated at 5.3 percent, USDA said this week, less than 2 ½ weeks supply, while the season average corn farm price is projected to be 30 cents higher than a month ago, averaging a record $6.50-7.50 a bushel, according to USDA’s World Agricultural Supply & Demand Estimates (WASDE) released September 12. Summer heat and dryness will reduce the corn crop by 417 million bushels from last month’s prediction with reduced yields across major corn-producing states, USDA said. Total corn supplies for 2011-2012 were reduced 442 million bushels, with 20 million shaved off carryin and 5 million cut from export predictions. Feed and residual use is reduced by 200 million bushels, with corn use for ethanol projected 100 million bushels lower than last month’s prediction. Corn exports are expected to be 100 million bushels lower.

Lack Data to Link Antibiotics, Feed Use: GAO

A report from the Governmental Accountability Office (GAO) on alleged links between human antibiotic resistance and the use of antibiotics in feed for livestock and poultry concludes the federal government has made limited progress in analyzing any alleged link because it lacks “detailed data” to confirm what activists groups contend, namely that on-farm antibiotic use is the prime contributor to increasing antibiotic resistance in humans. Part of the data gap is the lack of confirmable science demonstrating a relationship between using antibiotics in feed and water and human resistance, and the National Pork Producers Council (NPPC) said the GAO report “does not back up any link” between on-farm use and human disease. “Not only is there no scientific study linking antibiotic use in food animals to antibiotic use in humans…there is not even adequate data to conduct a study,” said NPPC. The Union of Concerned Scientists (UCS), the lead organization in trying to ban on-farm antibiotic use, said the report confirms what it has alleged, namely the federal government is not doing enough to address the problem.

Return to Farmer-Owned Grain Reserve, says NFU

Proving everything old can be new again, the National Farmers Union (NFU) this week said its 2012 Farm Bill policy options study shows a farmer-owned grain reserve similar to that in place in the late 1970s and early 1980s would cost the federal government half of the $13 billion spent on direct farm program payments over the last dozen years. Under the NFU plan, farmers could put grain and soybeans into the farmer-owned reserve when market prices are below loan rates and then collect 40 cents a bushel in yearly storage payments. They could sell the grain without penalty when a “release price” equal to 160 percent of loan rate was achieved. Reserves would be capped at 3 billion bushels for corn, 800 million bushels for wheat and 400 million bushels for soybeans. If prices drop below the loan rate and the reserve caps have been reached, then a voluntary farm set-aside could be triggered. The University of Tennessee study was commissioned to find ways to “provide the same level of (income) protection to farmers and ranchers” given farm program spending will very likely be cut by Congress. Dr. Daryll Ray told the NFU that if the U.S. has adopted this approach in 1988-2010, the value of U.S. exports would have been nearly $5 billion more than it actually was; corn prices would have been 26 cents a bushel higher; wheat prices 48 cents higher and soybeans would have garnered $1.09 more over that 12-year period. “The farmer-owned reserve acts to moderate highs and lows of grain prices, and during the period studied, farmers would have gained more income from market receipts and relied less on government payments, which would have been reduced by more than half,” said NFU President Roger Johnson.

President Spices Up Jobs Bill with Tax Increases, Deduction Limits

President Obama this week revealed a portion of his plan for paying for his “American Jobs Act,” and while part of the plan is his call for the Joint Special Committee on Deficit Reduction to find cuts in excess of the $1.5 trillion now mandated, the President is calling for tax hits and reduced deductions. In response, House Speaker John Boehner (R, OH) told the Economic Club of Washington in a September 15 speech that for his party and his chamber, “tax increases are not a viable option.” Said Boehner, “It’s a very simple equation. Tax increases destroy jobs.” Boehner directed his remarks to the efforts of the joint deficit reduction committee, but another target was the White House. He also called for “broad tax reform”—and did not rule out closing some tax loopholes—that includes lower tax rates for individuals and corporations. Offsets included in the President’s bill—his proposals to help pay for the new spending—include the following:

• “High-income” wage earners would see a 28 percent cap on the value of all itemized deductions and “certain other tax expenditures.” “High income” is defined as a married couple earning $250,000 a year or an individual earning $200,000 a year, and the new cap would begin January 1, 2013.
• The private and corporate jet tax depreciation schedule—currently five years—would be adjusted to seven years, making it the same as for commercial aircraft, and
• Eight separate tax breaks for oil and gas companies would be repealed.

Six-Month Highway, FAA Extension Approved

House Speaker John Boehner (R-OH) and Senate Majority Leader Harry Reid (D-NV) this week agreed to a bill that will temporarily extend federal highway programs for six months, or until March 31, and while the House approved the extension easily, Reid had tough sledding. Sen. Tom Coburn (R-OK), the Senate budget gadfly, blocked action on the federal highway program temporary extension, a bill that includes extension of the Federal Aviation Administration (FAA) authority. But at the eleventh hour, Reid was able to cut a deal with Coburn to allow the extension—already passed by the House—to move forward. Coburn was insisting that a requirement of the highway package – that states spend 10 percent of their federal dollars on “enhancements” including bike paths and hiking trails—be dropped, but allowed the extension bill to move forward when he received Reid’s assurance the enhancement language in the formal long-term reauthorization of the highway programs would include an option to the states to opt out of the bike path/hiking trail requirement.

House Judiciary Committee Begins Consideration of Immigration Bills

Consideration of two immigration reform bills started but didn’t finish in the House Judiciary Committee this week, and the panel said it will complete its action and mark up the bills next week. Both bills—one to mandate all U.S. companies use the on-line E-Verify database system to check on the citizenship status of current and prospective workers; the other to revamp the agriculture guest worker visa program—are the work of committee Chair Lamar Smith (R-TX) and both are opposed by ag interests and immigration reform advocates. Smith said he’s “sensitive to the needs of agriculture” and added language to his E-Verify bill that gives ag companies three years to comply, and touted his guest worker bill, which creates a new visa status overseen by USDA, as the solution to ag needs. California members weren’t impressed. Rep. Zoe Lofgren (D-CA) called the legislation “smoke and mirrors,” and Rep. Linda Sanchez (D-CA) said the E-Verify mandate would lead to failed crops and increased consumer costs. Rep. Dan Lungren (R-CA) who supports E-Verify, said the Smith bills have to be modified to meet ag needs or it won’t be enacted, adding he’ll likely offer alternative proposals next week.

Senate Passes Disaster Aid Package with USDA Supplement

With President Obama having signed 82 “major disaster” declarations this year, a nearly $7-billion disaster aid emergency spending package was narrowly approved by the Senate this week after rejecting two Republican amendments that would have forced Senate Majority Leader Harry Reid (D-NV) to pay for the package by cutting spending elsewhere. The House now takes up the measure, but the offsets issue continues to plague the process. On a 62-37 vote—with 10 GOP members voting with Reid—the package provides an additional $5.1 billion for the Federal Emergency Management Agency’s (FEMA) Disaster Relief Fund. The remainder of the funding goes to disaster assistance and recovery funding, including $266 million for USDA disaster assistance programs.

Teamsters File Suit Block U.S.-Mexico Trucking Agreement

The International Brotherhood of Teamsters and the activist group Public Citizen filed suit earlier this month against the Obama Administration to stop the agreement between the U.S. and Mexico to allow cross-border trucking access as required under NAFTA. The suit was filed in the U.S. Court of Appeals in San Francisco, alleging the pilot program announced this summer will allow Mexican trucks onto U.S. highways under safety and operational rules that are not strict enough. One example the suit cites is the lack of a requirement for a Mexican trucker to post a compliance notice the truck meets U.S. federal safety standards. Said Teamsters President Jim Hoffa: “The last thing this country needs right now is a guest worker program on wheels.” At the same time, the Department of Transportation released a report saying the cross-border agreement generally meets the requirements set forth by Congress for the effort, but also showed the Federal Motor Carrier Safety Administration (FMCSA) has several actions to take before implementation.