Bill Huffman
Director - Governmental Affairs

October 10, 2008

Congress, as you know, is in recess until after the election. We expect they may return in mid-November, especially if the financial turmoil continues and their legislative wisdom is needed.

Schafer Talks about the Future for Agriculture

Agriculture Secretary Ed Schafer, speaking in St. Louis today said, “The worldwide demand for food will continue to grow and set U.S. farmers in the driver’s seat.”  Speaking this morning at a forum hosted by the Association of Equipment Manufacturers, Schafer said “If the world is going to meet its needs for food-including a U.N. plan to double the food supply by 2050—the U.S. will be a player.”

Secretary Schafer has made several speeches in the last few days. It is interesting that Schafer commented this morning on alternative fuels saying that “Republican presidential candidate John McCain is “flat-out wrong” for opposing ethanol subsidies and that Democratic candidate, Senator Barrack Obama, also may not appreciate agriculture’s importance to the economy.”

Schafer told his audience that farmers are weathering the national credit crunch without seeing access to funds dry up.  He said farmers have had a couple of years of strong prices and have paid down debt and improved their balance sheets all of which will help agriculture through this period of uncertainty.

USDA Wrestles with Implementing New Farm Bill Provisions

USDA is preparing to announce the rules for the new Average Crop Revenue Election (ACRE) program, a new revenue assurance provision in the 2008 Farm Bill. Agriculture Secretary Ed Schafer told reporters this week that a decision is “imminent” on how USDA will interpret the farm bill’s language on ACRE.  It all comes down to which years USDA chooses as the baseline crop years to create the national average price for commodities that will be covered. Schafer says the White House wants USDA to save money and use the 2006-07 crop years to establish program prices, while Congress wants USDA to use the 2007-08 crop years for establishing that price. Schafer talked about the decision this week saying “We’re halfway between the White House and Capitol Hill” and we get squashed between the White House Office of Management and Budget and influential Congressmen over how to administer the ACRE program and establish the base price for the program.  That’s not pleasant!

ACRE is a voluntary program.  Farmers, who sign up for ACRE starting next year would agree to give up 20 percent of their direct payments, give up all counter-cyclical payments and take a 30 percent cut in their marketing-loan rates. In return, farmers would be eligible for a state-based revenue guarantee on acres planted; up to 90 percent of the state average yield calculated again the national average price for the crop averaged over two years. The whole calculation also is based on 83.3 percent of planted acreage. In order to get a revenue payment, farmers must show a revenue loss on the whole farm to get a payment.

It is a very complicated program. It remains to be seen if rice producers will participate in the new program or stick with their existing safety net program.

Next Year’s Budget Crunch

We are already hearing talk that there may be cuts to various entitlement programs next year as Congress wrestles with the budget deficit. Farm programs, energy subsidies and other spending important to the farm sector almost certainly will be included in programs that may be cut due to the very large Federal budget deficit. Capitol Hill veterans are saying that cuts are likely to come through the budget reconciliation process. We could see another “Gramm-Rudman” program where across the board cuts were made to Federal entitlement programs as was done in the late 1980’s.

Veteran Washington, D.C. agriculture writer, Jim Wiesemeyer, said this week in his column that “Even the most spend happy lawmakers in next year’s Congress will finally realize that the party is over and instead of increased spending, the agenda will be what to cut and how much. Included in the eventual “budget reconciliation cuts in the years ahead” will be farm program and some energy-related incentives.  Count on it!”

Japan Import Restrictions

We continue to monitor the current Japanese import restrictions resulting from the food safety crisis in that country we reported on two weeks ago.  It appears that Japan is about to implement new food safety import regulations. Once that happens we would expect they would resume imports of grains including rice. We look for some sort of an announcement soon that will allow for the resumption of imports of California rice into Japan, a vital market for this state’s growers.