Updating: Major Flood and Related Policy Developments

June 19, 2008 07:00 PM

via a special arrangement with Informa Economics, Inc.

Lots of potential issues and impacts rising as flood waters recede

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Updating, adding USDA resurvey for June Acreage & perspective

Midwest flood and related policy developments:

USDA resurveying producers for harvested acreage ahead of June 30 Acreage Report: USDA will contact farmers in six Midwest states to gauge how heavy rains and spring floods will affect the corn, soybean and sorghum harvests, officials said on Thursday. The special surveys will be in storm-hit areas of Illinois, Indiana, Iowa, Minnesota, Missouri and Wisconsin. USDA will release its annual Acreage report on June 30. The report lists crop plantings by state and estimates harvested area. The figures are based on surveys conducted during the first two weeks of June.

USDA's National Agricultural Statistics Service (NASS) said in a statement that it gathered most of the data before the worst of the flooding occurred. "But in an effort to more accurately determine how much of the planted area actually will be harvested for grain, NASS will re-interview producers during the week of June 23 in affected areas of Illinois, Indiana, Iowa, Minnesota, Missouri and Wisconsin," NASS said in the statement. "This will provide additional information about producers' harvesting intentions for corn, soybeans and sorghum."

"Since some producers may be difficult to contact or still may be assessing their options, NASS also plans to conduct a more extensive update of planted and harvested acreage in July. This information will be reflected in the Aug. 12 Crop Production report."

Comments: The updated acreage information will be closed watched not only by traders and commodity consumers, but the Environmental Protection Agency (EPA), which will make a decision on the Renewable Fuel Standard (RFS) waiver request by July 25. In that regard, one source noted that while the RFS mandate of 9 billion gallons for this year is a usage mandate and not a production mandate, the monthly ethanol production so far this year has never annualized to or beyond 9 billion gallons.

However, March ethanol production would annualize to 8.6 billion gallons and the addition of some 500 million gallons of imports would allow the 9- billion-gallon usage mandate to be met. While there are numerous ethanol plants slated to come on line this year, some of these plants have delayed start ups. And there are a few older plants that have been shut down for economic reasons and some plants have been shut down -- at least temporarily -- due to flooding. For whatever reason, if the EPA determines that the U.S. cannot produce enough ethanol, they have wide flexibility to alter the usage mandate -- and the odds of a change in the RFS are rising, according to my sources.

In comments filed with the EPA on Thursday, the National Cattlemen's Beef Association (NCBA) said it is supporting a petition filed by the State of Texas to reduce federal mandates for production of grain-based fuels. The petition requests that EPA use its statutory authority to reduce the Renewable Fuel Standard (RFS) mandate for 2008 by 50% – trimming the mandate to 4.5 billion gallons of feedgrain-based ethanol, from the current 9 billion gallons. "NCBA does not believe that issuing a partial waiver of the Renewable Fuel Standard immediately will reverse commodity price escalation, nor do cattle producers claim that it will single-handedly address the difficult marketing environment that currently exists for our industry," said NCBA Chief Executive Officer Terry Stokes in his comments. "But the RFS is clearly one factor contributing to higher feed prices." Stokes added that, "Corn growers responded to increased demand last year by producing a record harvest. However, the cattle industry does not operate in the past. Both the marketplace and Mother Nature have created a drastically different scenario this year. Lower acreage and below-trend-line yields only can mean one thing: less corn."

As one of the criteria for granting a waiver, EPA must consider the issue of economic harm caused by the RFS. In its comments, NCBA emphasized that ethanol production mandates driven by the RFS not only are creating hardship for livestock producers, but for other industries and consumers as well. "As corn and other grain prices continue to rise, buoyed by the RFS, the national economy is severely harmed, causing substantial losses in many industries and contributing to food price inflation and overall higher inflation rates. Next year's higher mandate will bring about even greater economic harm as the beef industry begins to contact and retail prices rise substantially as a result." While the NCBA policy supports the development of alternative energy sources and the nation's overall goal of energy independence, cattlemen want to see a greater emphasis on fuels produced from cellulosic or non-feedgrain sources. The NCBA maintains that until grain-based ethanol production operates in a climate that is less driven by federal mandates and government subsidies, the nation will continue to see extremely slow development of additional alternative fuel sources. "By granting this waiver, the EPA would accelerate the development of advanced biofuels that do not rely on food or feed as a feedstock," Stokes said. "Unfortunately, the mandate for corn-based ethanol is and will continue to send a market signal to construct more conventional ethanol facilities, instead of the next generation of biofuels plants."

Comments from all parties are due at EPA by Monday, June 23. Meanwhile, two House Democrats (Mark Udall and Ed Perlmutter, both of Colorado) introduced a bill yesterday that would scale back the tariff on imported ethanol -- the language would require the tariff be no higher than the blender credit for ethanol producers. The current import tariff is 54 cents, while the blender credits is 51 cents per gallon, but will go to 45 cents per gallon in January 2009 via new farm bill language. Also, 58 House members sent a letter to EPA Administrator Stephen Johnson this week asking him to accelerate the advancement of cellulosic biofuels when he evaluates the biofuels mandate. The letter asked EPA to "pursue cellulosic biofuels and other fuels that do not contribute to rising food prices and environmental concerns."

President Bush promises swift aid for flood recovery: President George Bush on Thursday visited the U.S. Midwest region that was hit by the worst flooding since 1993. "Obviously, to the extent we can help immediately, we will help," Bush said during a briefing at an emergency operations center set up at a local community college in Cedar Rapids. Afterward, Bush was taken on an aerial tour to show some of the damage from flooding that has forced tens of thousands of people to flee their homes across six states. He then visited Iowa City.

A preliminary estimate shows that four million acres of cropland in the Midwest has been damaged by flooding and harsh weather, Agriculture Secretary Ed Schafer said Thursday after touring Iowa.

Disaster aid funding: During a trip to Cedar Rapids, Iowa, with President Bush, Federal Emergency Management (FEMA) administrator David Paulison said the $4.2 billion currently in FEMA's Disaster Relief Fund should be "more than enough" to provide federal aid.

White House Budget Director Jim Nussle, a former Iowa congressman, said Bush would not announce new aid immediately, but was keeping an eye on the U.S. House of Representatives debate on a war funding bill that included $2.65 billion to replenish the disaster relief fund – the House on Thursday passed the measure; the Senate is expected to take up the bill next week.

The federal government will provide aid for short-term housing and help for farmers and ranchers. For long-term housing, FEMA is working on setting up a task force with local and state authorities. The task force will be similar to one that provided help the victims of the California wildfires, Bush said.

The House-passed language (all emergency funding and thus no budget offsets) appropriates $21.1 billion for domestic programs, military construction and various foreign aid programs, $3.3 billion more than the president's request. As requested, it includes $5.8 billion in FY 2009 funds for levee rebuilding in Louisiana and $2.65 billion to respond to the current flooding in the Midwest. It provides $9.9 billion for foreign aid, $500 million more than requested, including $465 million for counter drug aid to Mexico. It appropriates $2.2 billion more than requested for domestic base realignment and about $1 billion more for military hospitals. In addition, the amendment prohibits the establishment of permanent U.S. military bases in Iraq, but is silent on withdrawal of U.S. forces from that country.

The House-passed amendment also includes a temporary extension of unemployment insurance benefits for those out of work, generally providing a 13-week extension beyond the current 26 weeks allowed in most states. The measure also requires recipients of unemployment benefits to have worked for 20 weeks before being laid off. Unlike the previous measure, the amendment does not provide an additional 13 weeks of unemployment insurance for states with high unemployment rates. The program would expire after March 2009.

USDA to make advance direct payments "as soon as possible": I continue to hear talk of around July 1, or in Washington talk, "as soon as possible," regarding signup for the 2008 Direct & Counter-cyclical Program. With the Midwest flood situation, I know USDA officials will press to get this done as soon as possible because 22 percent of direct payments can be made. USDA should be able to implement the programs fairly quickly because the new farm bill language for most things begin for 2009 crops.

USDA official: Too late for crops on CRP for 2008 production: Farmers probably would be unable to harvest a crop this year if they are allowed penalty-free access to land idled in the Conservation Reserve Program (CRP), said Deputy Agriculture Secretary Chuck Conner. "I think it is too late for anything that is going to be a crop that is harvested in 2008," Conner said when asked if the reserve could add to the fall harvest. The planting season is too advanced for breaking long-idled land, he said.

High odds that USDA will announce opt out of CRP without penalty, but unknown is potential acres allowed: Usually reliable contacts say a decision has likely been made by USDA to announce that some current CRP contract holders will be allowed to exit the program early, without penalty, but not yet decided is how many CRP participants will be allowed that option. "USDA is currently looking at a subset of the situation in which participants with expiring contract over the next two to three years may be allowed early exit without penalty, depending on their Environmental Benefits Index (EBI) and other factors," one source said. But the contact said no final decision on this matter has been made. During our interview with USDA Secretary Ed Schafer this week, he revealed that USDA would accelerate its CRP decision. Another contact told us, "Remember that the new farm bill has a new maximum amount of acres for the CRP – of 32 million acres, from the prior 39.2 million acre maximum. The CRP early-out decision could help USDA reach that new maximum level. There currently are 34.7 million acres enrolled in the CRP.

CRP Expiration Schedule
(including continuous and general)
Million Acres
Sept. 30, 2008
Sept. 30, 2009
Sept. 30, 2010
Sept. 30, 2011
Sept. 30, 2012
NOTE: 2.6 million acres matured as of Sept. 30, 2007.


Midwest floods expose outdated levee systems: At least half of the 31 levees already breached or topped between southern Iowa and St. Louis were not built to handle a flood of such historic proportions, according to a USA TODAY review of data from the Army Corps of Engineers. Many of those were built at least 30 years ago, and some date to the 1940s. As riverside development has boomed, "levees built 50 years ago for agricultural purposes are often now asked to do the work of a residential or urban levee," said Eric Halpin, a corps special assistant for dam and levee safety. The floods "show a need for more robust and resilient levee systems." Experts say it is hardly surprising, especially given the low standards to which most levees are built. To qualify for the National Flood Insurance Program, structures simply need to be behind a levee built to a so-called 100-year standard, meaning there is a 1 percent chance in any given year that a flood will rise above the levee. In the Netherlands, on the other hand, levees for ocean flooding are built to a 10,000-year standard, and inland levees are designed at least to a 250-year standard and usually in excess of 1,250 years. "Around the world, the 100-year standard is a joke," said John Barry, author of Rising Tide, his book about the Mississippi River flood of 1927, and a member of a flood control authority that oversees six levee districts in metropolitan New Orleans. "We invest on the cheap.

Iowa Gov. touring flooded areas: Iowa Gov. Chet Culver toured flood damage locations in Iowa today. He will be joined later today at the Iowa Farm Bureau Federation in West Des Moines for a news conference. He will be joined by Iowa Lt. Gov. Patty Judge, Iowa Sec. of Ag Bill Northey, and officials from several agencies, including USDA and farm groups.

ABC's "This Week" focusing on energy: The weekly show will this week feature Sen. Kay Bailey Hutchison (R-Texas), Rep. Ed Markey (D-Mass.), Red Cavaney, President and CEO of the American Petroleum Institute, and economist Jeffrey Sachs, Director of the Earth Institute at Columbia University.

The topic: An in-depth debate on energy independence. Is there an energy crisis? What is the best way to deal with the high cost of energy? What does it all mean for the economy and national security?

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


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