Washington Report for 5-4-12

By Steve Kopperud

Senate Ag Committee Approves Farm Bill; Southerners Rebel at ARC Program

In what can be described as the war between the crops, midwestern and northern tier farm Senators carried the day as the Senate Agriculture Committee approved its version of the 2012 Farm Bill 16-5 late last week, losing all votes from southern Senators. The bill started the markup boasting almost $27 billion in savings over 10 years, but wound up when the final vote was taken saving only a bit more than $23 billion. A subsequent cost score by the Congressional Budget Office (CBO) says savings amount to only $17.4 billion, with another analysis expected soon. The attacks from cotton, rice, sugar and peanut interests were swift, alleging the approved commodity title favors corn and soybeans and larger midwestern farmers – with greater experience with crop insurance benefits – over their Deep South cousins. At one point, the unrest was enough to postpone the scheduled markup for 24 hours as committee staff tried to mollify southern crop producers. The core of the crop program dispute is the end of $5 billion in conventional direct payments, counter-cyclical payments and the Average Crop Revenue Election (ACRE) program, replaced by the Agricultural Risk Coverage program (ARC). ARC, built off an assumption prices will not dip significantly over the life of the bill and including an end to per-farm payment eligibility loopholes, is a “shallow loss” federally subsidized insurance program. ARC pays out when producers suffer crop and/or price losses of 11-21 percent, predicated on a per-farm acreage option (65 percent) or a county acreage option (80 percent) loss. Any loss over 21 percent would be paid for by conventional crop insurance. However, should prices drop dramatically, any budget savings from eliminating direct payments would be quickly erased, say independent analysts. Overall commodity payments by the government would drop by about 33 percent under the new scheme, with corn and soybean farmers seeing less reduction, while cotton, rice, peanuts and wheat would see a greater reduction in benefits. Sen. Saxby Chambliss (R-GA), former chair and ranking member of the ag committee, said, “It is neither equitable nor fair and attempts to redistribute resources from one regional to another. By squeezing all crops into a program especially designed for one or two crops, this bill will force many growers, particularly in our region, to switch to those crops in order to have an effective safety net, and isn’t this the very planting distortion caused by farm policy we ought to avoid?” The bill will continue to evolve on the way to the Senate floor as changes designed to stem southern opposition are explored as part of a substitute “managers’ amendment.” Sen. Charles Grassley (R-IA), however, said this week the bill may not need the southerners to pass given its bipartisan approval in committee. However, Senate Majority Leader Harry Reid (D-NV), on record pledging floor action if the committee passed a strongly bipartisan Farm Bill, has given no indication when or if he plans to bring the bill to the floor.  House Agriculture Committee Chair Frank Lucas (R-OK) said the Senate panel’s approved program “is not the commodity title that is ready to be part of a final Farm Bill.” He commended committee Chair Debbie Stabenow (D-MI) and ranking member Sen. Pat Roberts (R-KS) for making good on their pledge to get an omnibus farm package out of their committee before Memorial Day – and with a strong bipartisan vote – but added, “I look forward to working with them to end up with a final bill that continues the committee’s history of providing equitable coverage for all commodities in all regions.” Lucas’ committee this week announced two more Washington, D.C., Farm Bill hearings; the first will be May 8 to look at specialty crops and nutrition programs, and the second will be May 10 to review credit provisions. Back in the Senate, Chambliss was joined in his “nay” vote by Sen. Thad Cochran (R-MS), another former committee chair; Sen. Mitch McConnell (R-KY), Sen. John Boozman (R-AR) and Sen. Kirsten Gillibrand (D-NY), who voted against the bill based on its cuts to food stamp funding. 

Dairy “Supply Management” Wars Begin, but There’s More to Senate Ag Farm Bill than Income Protection

The “Agricultural Reform, Food & Jobs Act” – better known as the Senate Farm Bill – carries many more changes in conventional farm legislation authorization than just the Agricultural Risk Coverage program (ARC) that has enraged southern crop producers. Sen. Pat Roberts, ag panel ranking member, said, “This is a reform bill. No other committee in the House or Senate has voluntarily undertaken programmatic and funding reforms at this level in this budget climate.” Also destined to be controversial, however, is inclusion in the committee-approved bill of the National Milk Producers Federation (NMPF) “market stabilization” proposal, which critics contend is a milk supply control program to hold up prices. This proposal, designed to mitigate milk supply and price swings, has become a target not only for dairy processors, but for some major dairy state producers. The NMPF plan replaces three existing dairy programs and uses about $71 million in savings to pay for a “Dairy Producer Margin Protection Program.” The program provides a basic $4 of margin protection – higher if a producer wishes – based on spikes in “feed” costs calculated off grain and oilseed prices, not the cost of finished feed. The more milk a producer wishes to insure, the higher the producer premium, NMPF said. The program also carries a penalty for “overproduction,” a section challenged by Sen. Michael Bennet (D-CO), who offered but withdrew an amendment in committee to modify the program. While not touching the margin insurance part of the NMPF plan, Bennet would have scrapped the production penalty section as he has producers eager to produce for a new processing plant being built in Colorado. NMPF attacked the amendment, alleging it would cost $429 million over the five years, mainly in increased premium costs to farmers. In the broader bill, included in the estimated $23-billion savings over 10 years, the committee-passed bill consolidates 23 existing conservation programs into 13 and reduces the cap on the Conservation Reserve Program (CRP) to 25 million acres from the current 32 million acres, rewriting other conditions of participation; funds export promotion programs at $234.5 million for the life of the bill; eliminates 15 rural development and 60 research programs; cuts $4 billion in food stamps (Supplemental Nutrition Assistance Program (SNAP)); preserves $800 million in mandatory funding for energy programs, including on-farm renewable energy, efficiency projects and research/development for “advanced biofuels;” a $50,000 per person or legal entity payment limit for covered commodities and peanuts, and a new $750,000 Adjusted Gross Income (AGP) test, and a change in the “actively engaged in farming” definition; $750 million for the fresh fruit and vegetable program; $70 million per year for a specialty crop block grant program, and $406 million per year in specialty crop purchases by the U.S. Department of Labor (USDA). 

Trade Reaction to 4^th U.S. BSE Case Low; Calves Found, Investigation Continues

Negative reaction by U.S. beef trade partners to the U.S. Department of Labor’s (USDA) announcement last week it confirmed this country’s fourth case of BSE – the first in nearly a decade – has been minimal. USDA reported last week it uncovered an “atypical” case of BSE in an almost 11-year-old dairy cow in central California. The cow, picked up by a rendering company from a dairy in Tulare County, California, was tested as part of USDA’s routine surveillance program conducted at rendering facilities, and tested “atypical,” meaning the cause of BSE is not consumption of contaminated bovine tissues, USDA said. The cow was not presented for slaughter and no product or byproduct entered the food or feed chains. USDA reported this week the infected animal had two calves, one stillborn, the other located in another state. That animal “has been appraised, humanely euthanized and sampled for BSE,” and was negative for the disease, USDA said. At the same time, a hold has been placed on a second dairy in central California associated with the primary dairy location, with both dairies still under quarantine. The California Department of Food & Agriculture has completed its inventory of both facilities. In addition, the calf ranch where the BSE cow was born 10 years and seven months ago is also under investigation. USDA, in cooperation with the Food and Drug Administration (FDA), continues to investigate the feed records at the primary dairy, rendering facility and at the calf ranch, and to date 10 firms have been identified as suppliers for the primary dairy during “the time period of interest.” The department also confirmed the rendering facility met all federal labeling requirements for distribution of meat and bone meal. On the trade front, Canada, Mexico, Japan and South Korea, representing almost 90 percent of U.S. beef exports, said they plan no action on U.S. beef imports; only Indonesia said it will make importing U.S. beef/byproducts more difficult by raising its import standards on in-bone beef, tallow, glycerin and bone meal. An earlier report that Thailand took similar action initially proved to be false; however, Thai newspapers continue to report the government will shut down U.S. beef imports, and the U.S. Meat Export Federation (USMEF) has advised members a market shutdown is likely. Taiwan and South Korea sent teams to the U.S. this week to inspect slaughterhouses, as well as meetings with feed and rendering companies and laboratories. Only access to the primary farm in California has not been permitted. South Korea, nearly meat deficit given its ongoing battles with food-and-mouth disease (FMD), saw two supermarket chains pull U.S. beef – one subsequently restocked – and the Korean legislature’s agriculture committee approved a resolution barring inspection of U.S. beef in order to enter the country. However, the Korean government said it has increased import inspection, not because of safety reasons, but to provide “public assurances.” The Korean trade team in the U.S. reports back to the government on May 9.

House Member Pushing for Independent Counsel for MFG Investigation

Rep. Michael Grimm (R-NY) is circulating a letter to his colleagues for signature calling on the Department of Justice (DOJ) to appoint an independent counsel to take over the federal investigation of the MF Global (MFG) bankruptcy, according to reports. Currently, the Commodity Futures Trading Commission (CFTC), the Securities & Exchange Commission (SEC), and at least two congressional committees are conducting investigations into the eighth largest private bankruptcy in U.S. history. The letter, which Grimm intends to send to Attorney General Eric Holder next week reports The Hill, a Capitol Hill newspaper, draws attention to former MFG CEO John Corzine’s tenure as a Democrat Senator and former governor of New Jersey, and references Corzine’s “many relationships with highly placed individuals in the government who are very close to the investigation” of MFG. CFTC Chairman Gary Gensler’s former tenure with Corzine at a private financial company is mentioned. The letter being circulated by Grimm, a member of the Financial Services Committee, said his panel’s investigation shows a “pattern of regulatory behavior … which afforded preferential treatment to MFG at the expense of parties who are to be protected by governmental agencies.” The letter cites an April 21, 2012, revelation of Corzine’s status as “first quarter volunteer fundraiser” for the President’s re-election campaign and says the former MFG CEO raised “over $500,000” for the campaign. The letter states, however, “We have no direct evidence that either your office (Holder) or the Department of Justice is providing special treatment in this case.” Grimm said the independent counsel is necessary “in order to begin the long and difficult process of restoring the trust and confidence of the American people in their government, and to re-affirm the perception that every American is treated equally under the law.”

DOL Withdraws Youth Labor Rule

Abandoning all hope of negotiating a compromise set of changes to proposed federal child labor protections that would limit a good share of on-farm and related enterprise youth employment, the Department of Labor (DOL) late last week formally withdrew its controversial proposed rulemaking. The proposed rule would have restricted significantly any work done by youth under 16 years old on their parents’ farm, operations owned by relatives or in related employment within the ag community. A coalition of producer, processor, feed, grain and other ag interests, led by the Michigan Farm Bureau, opposed the DOL proposal, saying it would not only restrict the traditional role of youth labor on farms and ranches – including barring kids under 16 from herding animals on horseback or operating any machinery – but would have prohibited teenagers from working in grain elevators and other related ag businesses. Reps. Denny Rehberg (R-MT), Tom Latham (R-IA) and Dan Boren (D-OK) introduced legislation to block the DOL rulemaking, and House Agriculture Committee Chair Frank Lucas (R-OK) said, “I hope this will serve as a lesson to the administration that they should seek input from the agriculture sector before continuing to move forward with unworkable regulations.” Secretary of Labor Hilda Solis, long a champion of migrant labor protections, said she was only trying to modernize federal child labor protections, but it’s apparent she and her department seriously misunderstood the impact of the proposed restrictions. 

No New Food Safety Regs a Year after FSMA Enactment

Industry continues to wait for regulations implementing the Food Safety Modernization Act (FSMA) nearly one year after President Obama signed the measure into law. While the Food and Drug Administration (FDA) has drafted the initial sets of rules, those draft regulations are still pending at the Office of Management & Budget (OMB) for review, and while OMB has publicly said the reason for the delay is the complexity of the draft rules, most in industry believe the regulations’ price tag – estimated at north of $1.2 billion – is the real reason. The rules implementing the voluntary export inspection program were to be finalized last January, and the produce safety rules were supposed to be in place about the same time. The rest of the rules are to be published for public comment by July 4, but FDA has already said it will not make that deadline. 

Senate, House Name Conferees on Highway Bill

The leadership of the House and Senate named 47 members from both sides of the aisle to try and wrangle a compromise agreement between conflicting chamber versions of legislation to re-authorize federal highway, infrastructure and urban commuter programs. However, while conferees have been named, there has been no announcement of meetings to move the legislation forward. Insiders watching the conference evolution say it will be a truly uphill battle for the House conferees to reconcile the Senate bill – a two-year re-authorization at $109 billion – with the House preferences embodied in a five-year bill costing $260 billion. The biggest problem for the House is that while the Infrastructure & Transportation Committee approved the five-year bill, leadership was unable to garner sufficient consensus to bring it to the floor for a final vote. Instead, the House passed a three-month extension of existing program authorizations, but tacked on several new provisions including language to force the Administration to approve the Keystone pipeline from Canada to Oklahoma, and language to force the federal government to free up money to pay for harbor and waterway dredging.

House Moves on Dodd-Frank Credit Implementation; Eases Swaps Rule for Farm Credit

The House last week approved two bills aimed at mitigating the impact of the Dodd-Frank Financial Reform & Consumer Protection Act on agriculture. The first approved was a bill that would give smaller banks relief from Dodd-Frank provisions and allow them to provide low-interest fixed rate loans to small businesses. The relief also applies to credit unions, Farm Credit banks, the Rural Electric Cooperative system and finance companies. Rep. Vicki Hartzler (R-MO), author of the approved bill, said many smaller borrowers, including farmers and ranchers, are ignored by larger banks, but still need access to competitive loans. In a related development, the full House approved a bill that would exempt farm credit banks from restrictions on offering financial swaps. Exempt from the new swap rules are “farm credit institutions, insured depository institutions and U.S. branches of foreign banks, if they engage in a  swap with someone hedging credit risk or a swap to offset risks of such a transaction,” according to the bill. Similar exemptions exist to the “swap dealer” definition and swaps clearing mandate. The new rules on swaps mandate new collateral, stiff margin and recordkeeping requirements, and the bill approved last week would exempt certain financial entities from being classified as swaps dealers. House Agriculture Committee Chair Frank Lucas (R-OK), praised the House action saying Dodd-Frank never intended to regulate community banks in the same manner as global financial institutions. Committee ranking member Rep. Collin Peterson (D-MN) said the bill was consistent with the original intent of the law and he has no objections to it.

EPA, Army Corps CWA “Power Grab” Target of House Bill

A bill to limit the Environmental Protection Agency’s (EPA) jurisdiction over “navigable waters” was introduced in the House last week, a move designed to stop EPA and the Army Corps of Engineers from “illegally” expanding agency authority over waterways to “every ditch, puddle and pond in the country,” according to a House Agriculture Committee release. The bill, which will be overseen by both the ag committee and the House Committee on Infrastructure & Transportation, would bar the Administration from finalizing a guidance document that would significantly expand EPA authority under the Clean Water Act (CWA) to cover “occasionally wet areas,” limit land use decisions by owners and increase paperwork burdens, the committee said. The bill would also guarantee any regulatory decision contemplated by EPA relative to waterway jurisdiction under the CWA must go through notice of comment and rulemaking.

GMO Labeling Looks to be on California’s November Ballot

With supporters claiming they’ve submitted nearly one million signatures to the state attorney general – nearly double the number needed – supporting the initiative, it appears all but certain California voters will decide in November whether certain foods produced and sold in the state must be labeled as the product of genetic modification. Led by a group calling itself “The California Right-to-Know” campaign, the initiative seeks mandatory labeling for processed foods sold at retail, with restaurants exempt. Also exempt would be meat and dairy from animals fed feeds containing GM corn or soybeans, as well as alcoholic beverages. Opponents of the initiative are hoping to fend off the effort by convincing state voters the labeling mandate will increase food costs. Those opposed are also pressuring the Food and Drug Administration (FDA) to gear up to exercise its federal preemption authority over food labeling; however, FDA stepped aside when California voters approved Proposition 65 that led to the labeling/placarding of just about everything in the state – including foods both processed and unprocessed – as containing some form of cancer-causing ingredient. State ag interests are also still stinging from Proposition 2 on the 2008 ballot, a measure approved by more than 60 percent of the state’s voters to provide more room in swine and egg laying hen housing. That measure cost ag interests $2-3 million and the state has yet to write rules because the initiative language is deemed too vague. The 2012 initiative is expected to cost both sides close to $10 million in one of the nation’s most expensive media markets, particularly in a presidential election year when advertising space and time will be tougher to get. More than 40 nations around the world require some form of labeling indicating food contains genetically modified ingredients.

Corn Planting Pace Suggests Strong Ending Stocks: USDA

The U.S. Department of Agriculture’s (USDA) weekly Crop Progress report pegs corn plantings in excess of 53 percent of the estimated 96 million acres expected, well above the five-year average of 27 percent, and prompting USDA Chief Economist Joe Glauber to report: “We should see a very, very big crop and, particularly with demand starting to flatten a bit – at least on the ethanol side – we should see some rebuilding of corn stocks” to 2009 levels of about 1.7 billion bushels. He added the department right now is giving a preliminary estimate of season-average cash corn prices at around $5 a bushel. Fastest progressing corn planting states are Tennessee, North Carolina and Kentucky, with only Texas falling behind last year’s pace. Iowa made the most progress in the most recent week, jumping from 9 percent to 50 percent; in Ohio, 57 percent of the acreage is planted, compared to just 1 percent this time last year. Nationally more than 15 percent of the crop has emerged, with overall numbers indicating more than three times the corn has emerged compared with last year and more than double the five-year average. Soybean planting is reported by USDA at 12 percent, more than double the week before. Southern states lead in bean planting, with only Virginia reporting no progress. USDA releases its first seasonal forecast of new crop supply, demand and prices on May 10.

Top 100 Co-ops Post “Near-Record” Sales, Margins: USDA

This country’s top 100 farmer-owned cooperatives posted “near-record” revenue of $118 billion in 2010, and increase of 4 percent over 2009, the U.S. Department of Agriculture (USDA) reported this week. Net income for the top 100 was also up more than 10 percent to $2.39 billion, compared to $2.19 billion the year before. CHS, Inc., St. Paul, Minnesota, topped the USDA list with revenue of $25.3 billion, followed by Land O’Lakes, also in St. Paul, at $11.1 billion, and Dairy Farmers of America, Kansas City, Missouri, with $9.8 billion. Twenty-three co-ops had 2010 revenue over $1 billion. Dairy cooperatives saw the greatest revenue increase and accounted for more than half of the revenue spike recorded in 2010. Overall, gross margins as percent of sales hit 9.2 percent, up from 9 percent last year. A complete list of the top 100 cooperatives can be found by going to www.rurdev.usda.gov/supportdocuments/rdtop100agcooplist04-27-2012.pdf, with more detail available by going to USDA’s March-April issue of Rural Cooperatives magazine at www.rurdev.usda.gov/rbs/pub/openmag.htm.

Crop Chem, Conventional Production Needed; Increase in World Organic Production Means Less Food: UK Report

Continued “effective” use of chemical fertilizers and pesticides as part of conventional crop production will be necessary to produce “the bulk of the world’s food requirements,” according to a study released this week by the Crop Production Agency (CPA) in the United Kingdom. Increasing to 100 percent organic crop production would result in a 34 percent decrease in production compared to levels produced using conventional agriculture, the study reported. Led by McGill University in Canada, the study compared organic production efficiency to conventional agriculture and found that for the crops studied, organic agriculture performed particularly poorly for vegetables and cereal crops. Dominic Dwyer, CPA chief executive, said, “We urgently need measures to reduce waste and improve distribution, but output growth – yielding more crop per hectare – will be the single most important factor in helping food supplies keep pace with rapidly rising demand.”