Biofuels;
Debt Negotiations; Ag Economy; Trade; and Labor
Posted
By Keith Good On June 28, 2011
Biofuels
Chris
Clayton reported yesterday at the DTN Ag Policy Blog that, “The Food
and Agriculture Policy Research Institute at the University of Missouri released a
report Monday looking at some
market effects of ethanol policies.
“Congress is considering several different
alternatives to current ethanol policies. Reports coming out of
the deficit negotiations seem to indicate negotiators are willing to consider
significant cuts in the Volumetric Ethanol Excise Tax Credit, or VEETC, which
most of us just call ‘the blenders’ credit.’ The credit is approaching $6 billion a year in
cost, which isn’t considered sustainable politically.
“The Senate earlier this month voted to
eliminate the blenders’ credit and import tariff immediately, even
though both already are set to expire at the end of the year.
Still, the overall bill in which that ethanol language was included
actually failed
to pass.”
Mr. Clayton
explained that, “The
FAPRI report examined what would happen if the 45-cent
ethanol blenders’ credit And the 54-cent import tariff were extended indefinitely.
Yet even the most ardent ethanol supporter understands at this point that the blenders’
credit and import tariff are not going to be maintained at the end of the year,
certainly not at current levels anyway.
“Still,
FAPRI reports that extending the tax credit and tariff would add another 1.2 billion
gallons of ethanol from corn starch, using another 440 million bushels of corn. Corn prices
would rise by an average of 18 cents a bushel.
“Further,
increased demand for corn as an ethanol feedstock would translate into an expansion of corn acres by 1.7
million while soybean acres would fall by 800,000 acres,
the report stated.”
Yesterday’s
DTN item added that, “An earlier FAPRI report showed if the credit and tariff
disappear at the end of the year, corn planted acreage would dip slightly about
1.7 million acres next year. And corn acreage would level off over the next
decade to between 88.7-89.5 million acres annually.
“Further,
corn prices would dip from a market year average of $5.05 to a range of
$4.68-$4.79 a bushel over the next decade.”
Meanwhile, David
Shaffer reported on Saturday at the Los Angeles Times that, “Nothing
is visibly different at the Al-Corn plant, one of Minnesota’s oldest ethanol makers
— except that an
era of nearly unwavering government support for the industry seems to be over.
“‘I had a
feeling this was coming,’ local corn farmer John Fosness
said of the U.S. Senate’s June 16 vote to immediately kill ethanol subsidies.
“Though the
measure is part of a broader bill not expected to be approved, $6 billion in federal ethanol
incentives are certain to be scaled back as Congress and the Obama
administration confront the federal deficit. That has
significant implications in Midwestern states that are top ethanol producers.”
The LA
Times article pointed out that, “Even if the subsidies go away, the plant in
Claremont, 80 miles south of the Minneapolis area, is expected to keep running.
In a town that has lost its school, hardware store, lumberyard and barbershop
over the years, the Al-Corn plant is one of the bright spots in the local economy.”
Mr. Shaffer
indicated that, “But in a sign that ethanol hasn’t lost all its friends, the
Senate shot down an amendment by Sen. John McCain (R-Ariz.) to prohibit
federal spending on new blender pumps and tanks.
“Minnesota alone
has 21 ethanol plants that produce more than a billion gallons of fuel
annually, about 8% of U.S. output. With some exceptions, including two plants
that went bankrupt, they
have been an economic boost to small rural communities, employing more than
8,000 workers in all.
“That probably isn’t going to change
if subsidies are dropped, said Doug Tiffany, who
teaches applied economics at the University of Minnesota. The bigger, persistent
risks to the ethanol industry are corn
and fuel prices. When corn prices climb but fuel prices don’t,
it can be a disaster.”
In recent
opinion item regarding biofuels, Steven
Rattner indicated in Saturday’s New York
Times that, “At long last, the enormity of the nation’s budget deficit has
added momentum to the forces of reason. While only a symbolic move, the Senate
recently voted 73 to 27 to end ethanol subsidies. That alone helped push corn
prices down to $7 per bushel. Incredibly,
the White House criticized the action — could key farm states have been on the
minds of the president’s advisers?
“Even farm
advocates like former Agriculture Secretary Dan Glickman agree
that the situation must be fixed. Reports
filtering out of the budget talks currently under way suggest that agriculture
subsidies sit prominently on the chopping block. The time is
ripe.”
And a news
release last week from the National Cattelmen’s
Beef Association (NCBA) stated that, “The [NCBA] supports legislation
introduced by U.S. Representatives Wally Herger (R-Calif.)
and Joseph
Crowley (D-N.Y.) to immediately repeal the 45-per cent
per gallon Volumetric Ethanol Excise Tax Credit (VEETC) as well as the 54-cent
per gallon tariff on imported ethanol. NCBA member and California cattleman Paul Cameron said
government support of the corn-based ethanol industry has negatively affected
his cattle-feeding operation as well as his ability to retain employees and,
ultimately, make a profit.”
Interestingly,
an update
last week from USDA’s Economic Research Service pointed out that, “Access to distiller’s wet grains (a derivative
of ethanol processing used as a feed supplement for beef and dairy cattle)
could spur increased concentrations of beef and dairy herds near ethanol
processing facilities.”
The ERS
update stated that, “Ethanol’s reliance on corn as the primary feedstock and
the high concentration of ethanol processing facilities in the Corn Belt could slow or reverse the recent
shift in animal concentrations from the Midwest. In fact,
current and planned ethanol production capacities appear to correlate strongly with the presence
of livestock and, in particular, with livestock’s capacity
for distiller’s grain consumption.”
More
broadly on the ethanol issue, just yesterday ERS released a report titled, “Brazil’s Ethanol Industry:
Looking Forward.” An ERS summary of the report noted
that, “This report profiles and analyzes Brazil’s ethanol industry, providing
information on the policy environment that enabled the development of feedstock
and processing sectors, and discusses the various opportunities and challenges to face
the industry over the next decade.”
The report
stated that, “Demand for ethanol in major consuming countries is on the rise.
While Brazil may be best positioned to fill the growing world demand for
ethanol based on its low-cost resource base for ethanol production and its
ability to expand sugarcane area and increase productivity of both sugarcane
and ethanol production, Brazil’s
ethanol export supply depends on its domestic ethanol demand, world sugar and
oil prices, its currency exchange rate, and the capacity of its infrastructure
to move ethanol to ports. All these factors present challenges to the country’s
ability to expand production to meet rising domestic and export demand”
(at page 36).
Debt
Negotiations
News
developments with implications for Biofuels and the Farm Bill continue to
revolve around the ongoing negotiations over federal spending, taxes, and the
debt ceiling.
Naftali Bendavid and Carol E. Lee reported
in today’s Wall Street Journal that, “With time running short to reach a deal
to avoid a government default, President
Barack Obama met privately Monday with Senate leaders in hopes of resolving an
impasse over whether to include tax increases in a deficit-reduction agreement.”
The Journal
article explained that, “A bipartisan group of lawmakers led by Vice
President Joseph
Biden had agreed on cuts that total about $1 trillion over 10 years,
participants say. They were shooting for about $2.4 trillion in deficit reduction,
but when Democrats insisted about $400 billion in tax increases be considered,
the Republicans walked out.”
“White
House spokesman Jay
Carney provided the most specific list so far of the tax
changes Democrats want. These include a repeal of oil and gas subsidies, an
acceleration of the depreciation on private jets, a limit on deductions for the
wealthy, and a change in how businesses value their inventory,” the Journal
writers said, while adding that, “Democrats
are also pushing to end oil company subsidies and ethanol tax breaks, though
the ethanol subsidy is already scheduled to end this year.”
In an analysis
of the debt negotiations, Gerald
F. Seib indicated in today’s Journal that, “Sacred cows are starting to be
slaughtered. A broad bipartisan majority of the Senate voted
this month to end more than three decades of federal subsidies for ethanol. In
that vote, 33 Republicans and 40 Democrats and Independents—liberals, moderates
and conservatives—came together to save $6 billion a year on a program once
beyond reach. Just last December, Congress had voted to extend the ethanol
subsidy.”
And David
Rogers reported yesterday at Politico that, “Thus far, the Biden talks
have identified an estimated $1.5
trillion to $1.7 trillion in spending reductions —
two-thirds of the final goal. The challenge is to either close the gap with
some mix of savings and revenues or retreat to settling for a shorter-term debt
increase equal to the lesser savings figure.”
On a
separate issue highlighting narrowing budget parameters, AP writer Steve
Karnowski reported yesterday that, “As university budgets take a beating
across the country, agricultural schools and extension programs are feeling the
impact.
“Large-scale
layoffs have been threatened at some agricultural colleges, and even 4-H youth
programs are facing the ax because federal and state funding are
on the chopping block. At
a time when farmers are being asked to grow more for food and fuel to meet
soaring world demand, experts warn against eroding the country’s commitment to
agricultural research.”
Agricultural
Economy
A recent update posted
at the allAfrica webpage reported that, “The
government [of Kenya] will allow
millers to import cheaper genetically modified maize from
South Africa to help ease the acute shortage in the country. The decision was
reached on Tuesday after millers met Prime Minister Raila Odinga.
‘The government has allowed it … there
is no problem with GMO maize,’ said Cereal Millers Association
chairman Diamond Lalji yesterday. The price of GMO maize is 10 per
cent lower than the normal maize, according to Lalji.”
A news
release yesterday from the Global Harvest Initiative (GHI) stated
that, “The [GHI] today released its final policy issue brief which estimates a $90 billion annual
agricultural investment gap and outlines the significant role of the private
sector in closing this gap and addressing global food security.
“The policy
issue brief, ‘Enhancing
Private Sector Involvement in Agriculture and Rural Infrastructure Development,’
points to the private sector as one of the key influencers in creating economic
growth, raising global incomes, and feeding a population anticipated to reach
nine billion people by 2050.
“‘With a
$90 billion annual investment gap in the agricultural sector of developing
countries, the task of doubling agricultural productivity in 40 years is a
formidable one,’ said Dr.
William G. Lesher, Executive Director
of the Global Harvest Initiative. ‘There are simply not enough resources in
either developed or developing nations to bridge this sizable gap, so enhanced
private sector involvement is the key to improving agricultural and rural
development to ensure that the world’s future agricultural needs are met.’”
Meanwhile,
in other news, a recent report from South Dakota State University (“Agricultural
Land Market Trends 1991–2011”) noted that, “Agricultural land values are
booming again for all land uses and in most regions of South Dakota. The most
recent annual (2010–2011) increase
of 16.5% for all agricultural land values in South Dakota was the third highest
annual rate of increase since 1991…From 2001 to 2008, agricultural land
values in South Dakota increased more than 10% each year, including more than
20% in two years (2004–2005 and 2007–2008) during this period.
From 1991 to 2000 and from 2008 to 2010, annual increases in South Dakota
agricultural land values varied from 4 to 9%.”
Stephen J. Lee reported
yesterday at the Grand Forks Herald Online (North Dakota) that, “More than a fourth of the crop acres
North Dakota farmers intended to plant this spring didn’t get in the ground
because of flooding, and perhaps millions more acres that got planted now are
drowning out after recent rains.
“That’s the
upshot of an emergency teleconference Monday in which federal farm officials
from across North Dakota huddled to tally up how much damage this year of
too-much water is doing to agricultural production.”
Roman
Olearchyk and Jack Farchy reported
yesterday at The Financial Times Online that, “Heavy
rains and flooding across swaths of US farmland mean farmers have planted significantly
less corn than initially intended, according to Cargill, the world’s largest
agricultural commodities trader.
“Heavy
rainfall has flooded the Mississippi and Missouri river basins and delayed
planting in key corn-growing states such as Ohio and Indiana. Analysts say the prospect of lower
acreage and late planting could squeeze already tight supplies of corn, driving
prices for food commodities higher across the board.”
The FT
article added that, “Greg
Page, chief executive of Cargill, estimates that about 2.5m acres of corn have
been lost. ‘Clearly we have lost acres with the flooding,’ he
told the Financial Times in Kiev. ‘Certainly our company is fighting the floods
on the Missouri River.’
“However, he cautioned that the
ultimate size of the US corn crop, the world’s largest, was still uncertain.
Traders say weather has improved in recent weeks and the warm temperatures are
helping the development of the crop. Moreover, soil moisture is high after
strong rains during the past few months, cushioning the crop from heat stress
in the critical pollination phase in July.”
Trade
Richard
E. Cohen indicated yesterday at Politico that, “President Obama and key lawmakers
plan to announce this week an agreement to revive trade-adjustment assistance
for unemployed workers who have lost their jobs because of overseas trade,
according to several sources.
“That deal
could lead to a
breakthrough on long-stalled U.S. trade agreements with
South Korea, Colombia and Panama.”
The
Politico item stated that, “Rep. Sander
Levin, the top Democrat on the House Ways and Means Committee
said Monday in a Capitol speech that the trade package
‘might be available in the next day.’
“Other sources cautioned that earlier
expectations of a deal have proved premature, and the complexities of free
trade deals mean that any number of glitches can derail negotiations.
“Republican
proponents of the trade deals—including Ways and Means chairman Dave Camp (R-Mich.)—have
said for months that they hoped to finish work on the trade deals prior to the
August recess. The
Obama administration has insisted on the trade-adjustment extension before
completing the trade deals.”
Elizabeth
Williamson reported in today’s Wall Street Journal that, “The top
Democrat on a key House trade panel whipped up a new furor over three stalled
trade deals Monday when he said he
wouldn’t support a pact with Colombia if the White House and Republicans refuse
to include references to pro-labor provisions negotiated by the Obama
administration.
“The move
by Rep. Sander
Levin (D., Mich.), the ranking member of the House Ways
and Means committee, appeared late Monday to have rallied skeptical Democrats
against the Colombia pact. Reps. George
Miller (D., Calif.) and James McGovern (D.,
Mass.) issued
a statement also condemning the administration’s stance on the
Colombia bill.
“The White
House and Republican leaders continue to say they have the votes in each
chamber needed to pass long-stalled trade deals with South Korea, Colombia and
Panama. But repeated disagreements over the details of legislation to ratify
the pacts reduces the chances that the bills will pass before 2012 when
Congress likely won’t consider controversial legislation in an election year.”
In other
news regarding trade, a recent Congressional Research Service Report (CRS)- “The
EU-South Korea Free Trade Agreement and Its Implications for the United States”-
stated that, “On October 6, 2010, the 27 member European Union (EU)
and South Korea signed
a bilateral free trade agreement (FTA). The South Korean National Assembly and
the EU Parliament have ratified the agreement. The agreement is expected to go into
effect on July 1, 2011. The South Korea-EU FTA (KOREU FTA) is
the largest FTA in terms of market size that South Korea has entered into…This agreement has possible implications
for U.S. trade with South Korea and congressional action on the proposed
U.S.-South Korea FTA (KORUS FTA).”
At page 20,
the CRS report stated that, “However, attention has begun to turn to the
potential impact of the KOREU FTA on specific U.S. industries and sectors, and
in particular on what
happens to their sales to, and engagement in, the South Korean market if, as
expected, the KOREU FTA enters into force before the KORUS FTA does,
assuming that the KORUS FTA does at all. If this scenario unfolds, EU manufacturers
of products and some
agricultural producers that compete head-to-head with their U.S.
competitors could benefit from the price advantage
achieved as South Korean tariffs and non-tariff barriers on their products are
phased out or eliminated, while
Korean tariffs on U.S. products begin to be reduced later or stay the same.
Goods that might be affected this way include pharmaceuticals and medical
devices, scientific equipment, industrial machinery, and some agricultural products.
However, this
advantage would likely not be present if the KORUS FTA enters into force about
the same time as, or very soon after, the KOREU FTA does.”
Labor
Issue
Kim
Severson reported in today’s New York Times that, “A federal judge has
blocked the most controversial parts of a tough new Georgia immigration law that
was to have taken effect Friday, but left most of the law’s provisions intact.”
The article
noted that, “Whether
the injunction will soften the fear among immigrants in Georgia or help farmers
who say the law has sent their workers to other states remains to be seen.”
--
Keith Good
President
FarmPolicy.com, Inc.
Champaign, IL
(t) 217.356.2269
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