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TOPICS: Floods * Policy options * CRP * RFS * Ag disaster payments * Election * Farm bill
NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.
I had an interview with USDA Secretary Ed Schafer late Tuesday regarding the Midwest flood, Conservation Reserve Program (CRP), the Renewable Fuels Standard (RFS) and other issues. The following are highlights of what Schafer told me:
-- Midwest floods: “Everything is on the table” regarding dealing with the impact of the Midwest floods and other grain supply issues. USDA personnel have been told to “get creative.” This includes a suggestion from Sen. Chuck Grassley (R-Iowa) to allow short-season crops on existing CRP acres, but no final decisions have been made.
-- Flood tour: He will join President Bush Thursday during a tour of Midwest flood states. He is not aware that Bush will announce any policy initiatives on Thursday.
-- CRP: A decision on whether or not (and how) to offer CRP participants early out without penalty will be accelerated. USDA will no longer wait until the August Crop Report to make the decision.
-- Big factor: The key to any policy changes is whether or not they will have an impact.
-- One issue: crop insurance factors when a crop is replanted, or fails, and another crop is planted.
-- RFS: He does not back changing the Renewable Fuels Standard (RFS) standard and does not believe changes would impact food prices.
-- Ag disaster payments: When he briefed President Bush on Tuesday, he said the president was surprised to learn that the permanent ag disaster program in the new farm bill would not make payments for the 2008 crops until Oct. 2009 because of the need for season average farm prices.
“Everything is on the table” regarding dealing with the impact of the Midwest floods and other grain supply issues – USDA personnel have been told to “get creative.” This includes a suggestion from Sen. Chuck Grassley (R-Iowa) to allow short-season crops on existing CRP acres, but no final decisions have been made.
He will join President Bush Thursday during a tour of Midwest flood states. And, he is not aware that Bush will announce any policy initiatives on Thursday.
A decision on whether or not (and how) to offer CRP participants early out without penalty will be accelerated. USDA will no longer wait until the August Crop Report to make the decision.
The key to any policy changes is whether or not they will have an impact.
One issue: crop insurance factors when a crop is replanted, or fails, and another crop is planted.
He does not back changing the RFS standard and does not believe changes would impact food prices -- more on this subject, later.
Regarding the current situation in Midwest flood states, Schafer said, “When you look at the flood map, it overlays perfectly with a production map for corn. Until the water is gone, we can't have a true assessment. We are getting some as the water recedes.” He cited media reports of a 10 percent crop failure for corn (in Iowa). "As our evaluation teams produce assessment reports... state emergence evaluation teams are getting surveys done, but it takes the water receding to accomplish that."
“Corn stocks are not as low as they have been in the past,” Schafer said. But when we noted the tight stocks-to-use ratio, Schafer said, “Yeah, that's a tough ratio.”
Schafer said he would join President Bush Thursday in a tour of Midwest flood states. On Tuesday, Bush released a statement regarding the flood situation. Regarding agriculture, Bush said, “We're worried about farmers and ranchers. The country that's being affected by these floods has got a lot of farm country, a lot of people raising livestock. And the Secretary of Agriculture has briefed me on the conditions -- and we're still assessing how widespread the damage is on the farmlands -- and assures me that his team is in place to help farmers and ranchers with the federal aid available.”
Regarding potential policy options, Schafer said, “I have asked folks at USDA to get creative within the authority and confines of USDA. Every option will be considered.”
Schafer recalled that when he was governor of North Dakota he had a lot of experience dealing with floods. “In 1997 I oversaw the largest flood issue in this country before Katrina. I know how to slog through the mud. I have some sense that this (Midwest flooding) is not so much of a flood issue that goes away in a few days. This is a long-term issue. We have to look at the recovery as things unfold. For example, if you look at the RFS standards, can you make a difference... will it matter? We will be looking at everything... not only to affect the disaster area, but elsewhere."
Asked whether President Bush would announce any new initiatives following his trip to Midwest flood states, Schafer said, “If he is going to announce them, I am not aware of them yet."
A presidential surprise. When Schafer briefed President Bush on Tuesday, he said the president was surprised to learn that the permanent ag disaster program in the new farm bill would not make payments for the 2008 crops until Oct. 2009 because of the need for season average farm prices. USDA also has to write regulations for the program.
To qualify for the new ag disaster payment program, farmers must have purchased crop insurance – only 8 percent of Iowa farmers did not purchase crop insurance for the 2008 crops.
Advance payments? Some farm group lobbyists note that USDA in the past has made advance payments to farmers based on an estimate of what they are due. However, Schafer told me that Congress wrote the permanant ag disaster language without advanced payments - specifically as whole farm and specifically when after the amounts are posted at the end of the crop year. Had Congress intended advanced estimated payments as in other programs, Schafer noted, they would have - as they have in each of those cases - written it specifically to account for advance, estimated payments.
The Senate Agriculture Committee calculated how a 500-acre Iowa farm, with a crop mix of 55 percent corn and 45 percent soybeans, would benefit from crop insurance and disaster assistance (the example assumes that the farm's insurance policy covered 75 percent of the crop. The reason the disaster payment doesn't change: Insurance covers all the loss below 50 percent):
-- With a 50 percent loss in both crops, the farm would receive $98,442 in insurance benefits and a disaster payment of $21,373.
-- With a total loss on both crops, the farm would get $246,732 in insurance benefits and $21,373 in disaster aid.
Regarding the CRP, Schafer said one difficulty is that there is a certain period of time that the land needs to be in the CRP "before citizens get their investment in that property back” (I assume in part that means the cost-share payments). "There's a five-year rule here," he said. "The idea is that it takes five years to turn it... to productive capacity.”
"We are bumping up against the growing season now," Schafer said.
When asked about Sen. Grassley's suggestion to allow short-season crops on existing CRP acres, Schafer again said, Every option is on the table. But what are the short-season crops and what can you do?" he asked.
"Also, we have to look at crop insurance as well... there is an issue there, Schafer alerted relative to what producers can or cannot do on those acres after a crop loss.
Schafer added, "We are exploring how you can do a short-season crop on that land after a crop insurance payment is made..... the options table is wide open. But this is a critical issue here."
I was surprised how Schafer responded to this question: Mr. Secretary, I realize this is totally 20/20 hindsight, but if you had to make the CRP opt out without penalty decision again relative to last year, would you have changed the no CRP opt out decision you made?
Schafer said, “No...the reason is a small amount of acreage was coming out of enrollment for the 2008 crop.” That implies to us that perhaps USDA was going to limit opt out to only those acres maturing the year ahead. (There are only 1.2 million CRP acres maturing Sept. 30, 2008.)
Note: I asked for a confirmation and/or amplification of this issue and this is what I was told: "Let me confirm for you that for the 2009 crop...there's 1.2 million acres we know will be available to plant (CRP maturing acres). There's no intention to interfere with this. (As for the potential for other CRP acres) "We are watching the market dyanmics and the potentials...CRP is only one of the options. We continue to gather and evaluate the data."
Schafer added, “For the 2009 crops, the dynamics are different. My focus is on this and other policy issues. That is, can you do something that makes a difference...that has an effect. When we looked at 2008, even if you took all the acreage and planted it to corn, it didn't look like you could affect price much. But we have a different magnitude with the number of acres coming out (Sept. 30, 2009)."
As for the timing of a CRP opt out decision, Schafer said, “We're on an accelerated timeline.” He said USDA would no longer wait until the August Crop Report to make a decision.
Regarding the Renewable Fuels Standard mandates, “everything has changed with this recent flood issue,” Schafer said. “We have 300 million annualized gallons of ethanol facilities that are out of service now in Iowa. Another 100 million gallons is likely to be out of service...so that is 400 million gallons. Eventually those will be brought back on line. But Iowa has about 2.5 billion gallons ethanol capacity and another 1.4 billion gallons under construction, so on an annualized basis, the 400 million gallon drop is significant, but it won't affect the production capability to meet the RFS.”
“Also, the imports of ethanol can be used to meet the mandate,” Schafer noted.
Regarding calls to alter the RFS, Schafer said he is "not keen on changing the RFS... with the ethanol production capacity plus imports, we can meet the requirements. I'm not sure there is evidence that (changes) would affect food prices."
Senate Energy and Natural Resources Chairman Jeff Bingaman (D-N.M.) on Tuesday said, "The (RFS) mandate has a waiver authority to deal with changes in circumstances that are significant ... but we need to find out the extent of the damage and the reduction of the crop.” Bingaman said that regardless of the Environmental Protection Agency's decision to go forward with a waiver, it may not change much in corn prices.
On a political matter, Schafer made a recent comment to Bloomberg News that “not voting for the farm bill is not a good thing in North Dakota,” and that “politically, it's a problem (GOP presumptive presidential candidate John) McCain (R-Ariz.) will have to deal with as the campaign unfolds.”
When asked about this, Schafer said “60 million people call Rural America home. They are mostly conservative, and they like fiscal discipline and government responsibility, and they are independent. They like to live without government dependence. That is what John McCain stands for. Those voters appreciate that President Bush vetoed the farm bill, and McCain said he would not vote for it, noting that it overspends and creates bigger government.” He said, “McCain will win the Rural America vote.”
"I don't think conservatives will switch to a liberal like Obama over McCain," Schafer said, noting Obama is "the most liberal senator in the Senate."
I asked Schafer if he would be like former USDA Secretary Mike Johanns, who pushed a far different farm bill when he was Ag Secretary, but then said he would have voted for the current new farm bill as he runs for a Senate seat. Schafer said he would “definitely not have voted for the farm bill, but in no way do I ever want to run for the Senate.” He acknowledged that “some things in the farm bill are good stuff for North Dakota.” Schafer also said he “absolutely recommended that President Bush veto the farm bill.”
NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.