Bill Huffman
Director - Governmental Affairs

October 3, 2008

The House of Representatives today approved the Senate’s version of the economic recovery bill (bailout) for Wall Street on a 263-171 vote. That legislation commits $700 billion to the Treasury Department to purchase from banks non-performing equities and other troubled assets to improve bank financial position’s in order to stimulate credit markets and lending resulting from the Wall Street debacle. President Bush is expected to sign the bill shortly.

Farmer Mac

A group of farm lending organizations injected $65 million of fresh capital into the Farmer Mac program this week. Farmer Mac, which is chartered by Congress to operate a secondary market for farm loans, was feeling the effects of some sour investments which resulted in troubling losses in its investment portfolio, which included one million preferred shares of Fannie Mae. The losses threatened to drain Farmer Mac’s capital below the minimum level required by regulators. Most of the new capital came from the five banks in the Farm Credit System and from Zion’s Bancorp of Salt Lake City, which owns about one fifth of Farmer Mac’s voting shares.

Agriculture Secretary Discusses Credit Woes

Agriculture Secretary Ed Schafer said Wednesday “tightening liquidity in the U.S. financial sector hasn’t hit the farm economy yet, but it would be a mistake to discount the possibility it will. We don’t know what’s going to happen out there, but the rising cost of farming coupled with tightening credit could spell trouble for farmers preparing to plant next year’s crops”.

Schafer told reporters “as commodity prices have gone up, as input costs have doubled and tripled, the cost of farming operations today are huge and that backs up to the banks that have balance sheets that are tight and that backs up to (grain) elevators that have credit stretched out themselves.”

Schafer said “I believe there’s a possibility that we could see tight credit markets having an effect on agriculture production in the coming year”.

It is interesting to note that several major commodity groups have requested that Secretary Schafer help address any potential liquidity crunch in the agribusiness sector should one occur as a result of another rapid increase in commodity prices. The Agricultural Retailers Association (ARA), a Washington, D.C. based trade group, says it believes that USDA has the authority under the Commodity Credit Corporation (CCC) to establish a temporary loan guarantee program that would ensure efficient marketing of farm commodities in the event of a liquidity crunch. The Association said such a temporary program could provide loan guarantees to qualified financial institutions lending to agricultural businesses; allowing for the continuation of forward contracts and crop input support financing to producers. ARA said that increased borrowings by agribusinesses have placed significant pressure on company balance sheets, and in some cases, also have resulted in significant restrictions on the availability of forward contracts for U.S. farmers.

Japan Rice Import Ban Continues

The California Rice Commission and the USA Rice Federation are continuing to push for an end of the Japanese rice import ban that was imposed two weeks ago because of some food safety concerns involving rice imported by Japan from Viet Nam and China. This week, Congressman Wally Herger was asked to contact USDA Secretary Ed Schafer and voice the industry’s concern about the effects of the import ban on California’s rice industry. Mr. Herger made the call and Secretary Schafer told Congressman Herger that he had spoken to his counter-part in Japan and discussed the fact that California rice was not involved in the food safety issue and that the import ban was unfair to California growers. Secretary Schafer said he did not receive any indication when Japan will resume imports of California rice.

Bush Signs Continuing Resolution

President Bush has signed a continuing resolution that will fund the government through next March 6th.  The bill includes new fiscal-year 2009 funding for the Departments of Defense and Veteran’s Affairs and continues funding at current levels for all other agencies include USDA.

It is interesting to note that USDA this week announced that the U.S. Rice Federation and the U.S. Rice Producers Association were allocated $4,665,156 in market promotion and foreign market development funding for the ensuing year. This money helps the rice industry expand foreign markets for U.S. produced rice.

Visiting Delegations

This has been a busy week for the California Rice Commission and various rice mills as there were six visiting delegations to the state to study the California rice industry and discuss rice purchases.  Among the delegations were groups from Korea and Taiwan, both large buyers of California rice under WTO agreements.

Finally, Assistant U.S. Trade Representative Wendy Cutler said this week that she did not believe that a U.S. – Japan free trade agreement will be possible in the near term. Ms. Cutler made the comments in a speech to the American Enterprise Institute. While Japan has considered a bilateral free trade agreement with the U.S. in the past, the idea has been shelved because of internal Japanese resistance to agricultural and regulatory reform.