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ethanol lula in todays post

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    Spending Measures Head to Conference – Lula in Today’s Post
    Categories: Farm Bill / Ethanol / Brazil / Budget / Doha / Trade
    Demand for renewable energy, primarily corn-based ethanol, has played a leading role in the tight budget situation facing the Agriculture Committees. As the market price for corn and other program crops has increased, the projected amount of future price-triggered federal payments has significantly narrowed. However, ethanol’s influence will go far beyond the federal budget and will likely have a variety of ripple impacts throughout the agricultural economy.

    I. Spending Measures
    II. Ethanol-Lula in Today’s Post
    III. Doha

    I. Spending Measures

    Congressional Quarterly reported yesterday that, “The Senate passed a roughly $123 billion supplemental war spending bill today by a 51-47 vote, paving the way for what lawmakers hope will be a speedy conference.”

    Carl Hulse and Jeff Zeleny indicated in today’s New York Times that, “[Senate Majority Leader Harry Reid (D-NV)] promised that negotiators would quickly begin to reconcile the new Senate measure with a version passed by the House last week and have a bill ready to be approved and sent to the president soon after the House returns from its spring break on April 16. The administration has said the military needs the money by April 15, and the White House said Thursday that the Pentagon was already having to juggle accounts, shifting money from one program to another to buy more vehicles better able to withstand mines.

    “Dana Perino, the deputy White House spokeswoman, said, ‘This, again, underscores the need to get the show on the road, get the bill to the president, he will veto it, and then, we’ll take it from there.’”

    Thomas Schatz, penned an Op-Ed regarding the details of the war supplemental, which was published in today’s New York Times.

    The opinion item noted that, “Emergency spending bills are called ‘Christmas trees,’ for the unrelated ‘ornaments’ that are added by members of Congress. (They are exempt from budget rules and are almost never vetoed, making them magnets for pork.) The nickname is usually not literal, but the Senate’s version of the fiscal 2007 supplemental appropriations bill that passed yesterday includes, among scores of other nonessential items, money for Christmas-tree growers.”

    The Op-Ed included this chart, which contained a breakdown of all of the non-war related spending measures contained in both the Senate and House versions of the war supplemental.

    Faith Bremner, writing in yesterday’s Argus Leader (South Dakota), reported that, “South Dakota Sen. John Thune will vote against the Iraq War spending bill today and in the process will vote against millions of dollars in aid for his state’s drought-stricken farmers and ranchers.

    “The $122 billion spending bill, which President Bush has promised to veto, includes $3.7 billion in disaster aid for the nation’s farmers and ranchers. Agricultural producers have been trying for two years to win congressional approval for the assistance.

    “Thune, a Republican, supports the disaster aid but opposes a provision in the bill that would set a March 2008 goal for bringing most U.S. troops home from Iraq. He and 47 other lawmakers, mostly Republican, tried but failed to remove the deadline language from the bill Tuesday.”

    The article added that, “The spending bill is the agriculture community’s best hope for getting disaster relief anytime soon, said Mike Held, administrative director of the South Dakota Farm Bureau. Democrats tacked disaster assistance and other popular spending proposals onto the bill to win over wavering senators, a tactic Republicans also employed when they ran Congress.”

    Meanwhile, in the House of Representatives, Lori Montgomery reported in today’s Washington Post that, “Democrats marshaled a $2.9 trillion budget blueprint through the House yesterday, uniting a diverse coalition behind a spending plan that would increase funds for education, health care and veterans’ services while aiming to erase the federal deficit within five years.

    “To balance the budget, the proposal would permit President Bush’s signature tax cuts to expire on schedule in 2010, prompting Republicans to accuse the new congressional majority of plotting a massive tax increase. Those charges helped persuade a dozen Democrats, including several freshmen from conservative districts, to reject the blueprint, which was approved on a vote of 216 to 210.”

    With respect to agricultural spending in the House budget plan, Reuters news reported yesterday that, “House Democrats may use offsets to cover the use of a $20 billion reserve fund for new agricultural spending while a new farm bill is written, the head of the House Agriculture Committee said on Thursday.

    “Lawmakers would be able to dip into the $20 billion reserve, but would have to take funds from other programs or find new federal revenue.

    “‘We haven’t identified anything specific, but we have got an indication that there is fairly broad-based support on a bipartisan basis to try to figure out a way to accomplish that,’ Rep. Collin Peterson, chairman of the House Agriculture Committee, told reporters.

    “The Minnesota Democrat said lawmakers agree more funding needs to go toward conservation, rural development, fruits and vegetable and renewable fuels and feed stocks.”

    The article also explained that, “The House and Senate have a goal of agreeing by April 15 on a spending plan. The House approved its budget blueprint, with the $20 billion reserve for agriculture through fiscal 2012, on a 216-210 vote on Thursday. The Senate passed its budget resolution last week, allowing a $15 billion reserve fund for agriculture over five years.”

    In order to secure an additional $15 to $20 billion above the allocated baseline for use in crafting the 2007 Farm Bill, the Agriculture Committees will have to find spending offsets or revenue enhancements to “pay for” the excess spending.

    As the Washington Post editorial board explained in today’s paper (“Hello, Pay-Go”), “The House and Senate have now passed budget plans for next year. First the good news: The resolutions enshrine ‘pay-go,’ which is a procedural impediment to additional deficit spending. Pay-go means that more spending on things such as entitlement programs or tax cuts will have to be offset by either tax increases or spending cuts elsewhere. It’s an eminently responsible idea that should force Congress to make some tough but needed choices as it allocates cash over the coming months.”

    As demand for resource allocations for “conservation, rural development, fruits and vegetable and renewable fuels and feed stocks” in the Farm Bill increases, it appears that lawmakers will have a difficult time finding “Pay-go” offsets, particularly because some commodity groups are also seeking additional funding for Title I farm subsidy measures.


    Now that both the House and the Senate have passed a budget resolution and war supplemental bill, conferences between the two chambers can begin. Congressional Quarterly reported this morning that, “Conference negotiations on the budget resolution are expected to go quickly, while the supplemental negotiations will be more difficult but probably won’t drag out. Both chambers are heading out of town for a spring recess next week. The House will be gone for two weeks while the Senate takes a week respite.”

    II. Ethanol

    Demand for renewable energy, primarily corn-based ethanol, has played a leading role in the tight budget situation facing the Agriculture Committees. As the market price for corn and other program crops has increased, the projected amount of future price-triggered federal payments has significantly narrowed. However, ethanol’s influence will go far beyond the federal budget and will likely have a variety of ripple impacts throughout the agricultural economy.

    A recent Congressional Research Service report, “Ethanol and Biofuels: Agriculture, Infrastructure, and Market Constraints Related to Expanded Production,” (by Brent D. Yacobucci and Randy Schnepf, March 16, 2007) which provided a comprehensive background on a variety of ethanol related issues, noted that, “Rapidly expanding corn-based ethanol production could have significant consequences for traditional U.S. agricultural crop production. As corn prices rise, so too does the incentive to expand corn production either by expanding onto more marginal soil environments or by altering the traditional corn-soybean rotation that dominates Corn Belt agriculture. This would crowd out other field crops, primarily soybeans, and other agricultural activities. Large-scale shifts in agricultural production activities will likely have important regional economic consequences that have yet to be fully explored or understood” (pages 4-5).

    Amanda Paulson, writing earlier this week in the Christian Science Monitor, reported that, “In ethanol-happy Iowa, where presidential candidates are falling all over themselves to support the corn-based fuel additive and farmers are reveling in corn prices double those of a year ago, Joe Kerns sometimes hands out bumper stickers that read: ‘Ethanol: A complete waste of otherwise perfectly good corn.’

    “It is not a popular opinion. ‘It’s tough to be the lonely voice out in the desert when there’s a party going on,’ acknowledges Mr. Kerns, director of purchasing for Iowa Select Farms, the state’s largest pork producer. ‘But I’ve had enough of [ethanol].’

    “In the past six months, agriculture in America’s heartland has been turned on its head. Corn is selling at $4 a bushel, ethanol plants have turned around dying towns, and land values and rents are soaring. It’s a boom time for farmers who haven’t had a really good year in several decades, but not everyone is benefiting. Livestock producers like Kerns, for instance – who depend on cheap corn for their feed – are feeling the pinch.”

    Ms. Paulson added that, “Agricultural economists and forecasters, meanwhile, are struggling to sort out the new dynamics. They debate whether the new fuel demands on corn are sustainable and what impact they might have on food supply.

    “‘The whole world for agriculture here in Iowa and in the Midwest has changed,’ says Mike Duffy, an agricultural economist at Iowa State University. The effects vary widely for farmers, he says. ‘Depending on the point of view, I’ve heard ethanol described as the good, the bad, and the ugly.’”

    A recent article posted at News (Ireland) stated that, “The development of the ethanol industry is the biggest shock to US agriculture since 1973 when Russia entered the grain market, a leading US agricultural policy expert told the forum.

    “Bob Thompson from the University of Illinois said the booming ethanol industry would lead to a spike in food prices over the coming years.

    “‘The price of meat, milk and eggs have to rise or farmers won’t produce them,’ he said. ‘Higher feed grain prices will reduce profitability of US livestock and poultry industries. Currently, US farmers and politicians are more enamoured with growth in ethanol and other biofuels than with exports and WTO negotiations.’”

    Associated Press writer Genaro C. Armas reported today that, “Dairy economists predict the retail price of milk could rise as much as 30 cents per gallon _ a 9 percent jump _ by fall. The reasons include rising fuel and feed costs for farmers and increasing demand for milk products around the globe.

    “The average retail price of whole milk could rise to $3.35 per gallon by October, up from $3.07 in January, said Ken Bailey, an agricultural economist at Penn State University who specializes in the dairy industry.”

    The AP story added that, “Logan Bower, president of the Professional Dairy Managers of Pennsylvania, said costs for farmers have risen so much recently that he is unsure whether even the predicted price increases will help.

    “Costs have surged for fuel and petroleum-based products and for the corn used to feed dairy cows, a side effect of increases in the production of ethanol.

    “Bower said he now pays about $180 a ton to feed his 500 dairy cows, up from $115 a ton a year ago, an increase of more than 50 percent.”

    Kevin Morrison and Doug Cameron, writing earlier this week at the Financial Times webpage, reported that, “Ethanol is expected to swallow one-quarter of US corn production this year and food producers warn of a ripple effect on global prices as grain-based animal feed prices increase and farmers grow more corn and less of other crops. This could force livestock farmers to reduce their herds, a move that would push meat prices up.

    “The annual acreage report from the USDA, due on Friday [today], will be closely watched, with corn planting expected to show the biggest increase for more than a century, resulting in the largest area under cultivation since 1946.”

    The FT article indicated that, “Dick Bond, chief executive of Tyson Foods, the world’s largest protein producer, has called on Washington to recognise the competing claims of the food and energy sectors when drawing up a proposed farm bill. ‘If left unaddressed, the bigger long-term issue will be the availability of US and global grain for protein and other foods,’ he warns.

    “The USDA predicts that farm cash receipts will this year be 22 per cent above their average over the past decade. Yet [farmer Merlin Bartz] and others should not expect too much of a bonanza. After taking into account higher costs for fertiliser, feed and seeds, the department forecasts that farm expenses will be an even sharper 24 per cent above the 10-year average. That leaves American farmers sharing an aggregate income of $67bn (£34bn, €50bn), barely changed from 2006.”

    Later, the FT article added that, “With the economics of ethanol and its environmental credentials still open to debate, and government policies subject to change, the longer-term outlook is unclear. Yet the emergence of bio­fuels has still transformed how banks and investors look at agriculture.

    “Morgan Stanley and Goldman Sachs, the two largest commodity traders in the banking world, have started to expand their agricultural trading operations during the past 12 months, having spent the past two decades focusing on metals and hydrocarbons. Colin Bryce, head of fixed-income securities and commodities at Morgan Stanley, says the attraction of the sector stems not just from biofuels but also the financial services that banks can offer.”

    A Dow Jones news article posted yesterday at the DTN Ethanol Center, reported that, “Legislation critical of the U.S. tariff on ethanol imports was introduced in the U.S. Senate this week, together with a call for a study on the effects of removing the trade barrier.

    “Sen. Richard Lugar, R-Ind., called for the study as part a broader bill that would form a pact with Brazil in an effort to boost ethanol production and research in the Western Hemisphere.

    “The bill criticizes the 54-cent-a-gallon tariff that U.S. ethanol industry representatives say is needed to boost a growing industry here.

    “‘The United States government should work with foreign governments to remove trade barriers in energy,’ said the bill, titled ‘United-States - Brazil Energy Cooperation Pact of 2007.’”

    To read a related press release issued by Sen. Lugar on this development, just click here.

    Meanwhile, Brazilian President Luiz Inácio Lula da Silva penned an Op-Ed, which was published in today’s Washington Post.

    In part, Lula noted that, “Tomorrow I will visit with President Bush at Camp David to follow up on conversations we had a few weeks ago in Sao Paulo. We have taken an important first step toward committing our countries to developing clean and renewable energy sources that will ensure the prosperity of our peoples while protecting the environment.”

    The item noted that, “The agreement between Brazil and the United States provides for diversifying the production of biofuels through triangular alliances with third countries. This networking can include oil-producing countries interested in blending ethanol or biodiesel into their own fossil-fuel stocks. This is a recipe for increasing incomes, creating jobs and alleviating poverty among the many developing countries where biomass crops are abundant.

    “For these proposals to gain traction, foundations for a worldwide market in these fuels must be put in place. Brazil and the United States joined India, China, South Africa and the European Union in launching the International Forum on Biofuels this month. Its goal is to ensure conditions for ethanol, and later biodiesel, to become globally marketed commodities. This will be achieved only if trade in biofuels is not hindered by protectionist policies. After all, the subsidies provided under America’s corn-based ethanol program have spurred an increase in U.S. cereal prices of about 80 percent. This hurts meat and soy processors worldwide and threatens global food security.”

    III. Doha

    Dow Jones writers Natasha Brereton and Paul Hannon reported yesterday that, “The U.S. and European Union may need to make further concessions on agricultural policy if the Doha trade round is to succeed, U.K. Chancellor of the Exchequer Gordon Brown said Thursday.

    “‘The head of the World Trade Organization has finally brought together all the main parties that could contribute to a solution, but there is still this central issue that America and Europe will probably have to make a further concession on agricultural policy,’ in order to enable Brazil and other nations to also make concessions, Brown told the Treasury Committee.”

    -Keith Good

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