Obama favors more modest cuts, leaving small farmers with more subsidies.
The candidates split on world trade. For free trader McCain, foreign sales
are uppermost in farm policy. He’d strive to wrap up the languishing world trade pact
to expand U.S. exports...urging deep cuts for all nations in crop subsidies and tariffs
because they inhibit trade. But he’d have little luck getting a Democratic Congress
to approve new pacts. Obama would be slower to sign new trade deals...he’d try
to redo NAFTA and wants labor and environment clauses in any new pacts.
They’d both pursue clean energy technology for wind, solar and biofuels,
including cellulosic ethanol, billions in R&D and a cap-and-trade plan to curb CO2.
Congress has already charted billions for alternatives in recently passed legislation.
But Obama focuses more on alternative sources, including billions more
for better conservation, biomass sources and tax breaks for corn and soybean fuels.
McCain has a broader agenda...leaning heavily to U.S. oil and natural gas,
including offshore drilling plus more nuclear power and clean coal advances.
He’d support tax credits for fuel-stingy autos but terminate those for corn ethanol.
They’d both try to accept more immigrant workers, including farmworkers.
The two are jousting over immigration in a fight for Hispanic votes, and McCain
will show a tougher face on enforcement to appease anti-immigrant anger in his base.
Note that over half of all hired agricultural workers are undocumented immigrants.
But they disagree on minimum wage…an important issue for ag employers.
Obama is proposing to index the minimum wage to inflation. McCain says no.
 Neither McCain nor Obama would push to repeal the estate tax.
But both want to increase the exemption, which is now set at $2 million.
Obama wants it at $3.5 million, the 2009 level. McCain…$5 million. One difference
lies in where they would set the highest rate. McCain would drop the maximum rate
to 15%, while Obama would set it at 45%. With Democrats keeping hold of Congress
in 2009, it’s a good bet that the maximum rate will be closer to Obama’s target.
On corporate taxes, Obama proposes to cut the top rate to 30.5%
while scrapping other tax breaks for what he views as a fairer corporate tax system.
McCain would cut the top rate to 25% to help U.S. companies compete.
Either proposal isn’t out of the question for 2009. The Democratic Congress
would probably support Obama and could even approach McCain’s scheme.
 Obama would be a stronger activist than McCain. He’d press for a ban
on meatpackers owning livestock and stricter policing of manure runoff
from farms, etc. Both broadly support protecting the environment, natural areas
and wildlife. On fuel efficiency standards for autos, Obama wants to double
the fuel efficiency by 2027. McCain urges stronger enforcement of current regs.
 With the farm bill passed, USDA is rolling out 2008-crop programs:
Direct payments are on tap, with advances of 22% of 2008-crop payments
now available with the balance paid in Oct. National and county loan rates for 2008
are now posted for all USDA program crops at kiplinger.com/letterlinks/loanrates.
Sign-up for aid on crop quality losses from the 2005 to 2007 seasons
is available on crops covered by insurance or the noninsured disaster aid program.
The new disaster aid program will pay up on flooded Corn Belt acres,
though regs will have to be completed and payments won’t come until the fall of 2009
because 2008 losses must first be totaled and marketing year prices averaged.
Also, note the deadline to sign up for crop programs is extended to Aug. 15
because of recent Midwest floods, related late planting and a need to replant fields.
Look for thin participation in the Average Crop Revenue Election in 2009,
the farm bill’s insurance option for covering both yield and market prices at once.
There’s no premium, as such, but farmers must forfeit 20% of their direct payments.
Plus they must live with their choice for four years, and ACRE includes some pitfalls
that’ll scare many away. Their crop revenue per acre must be less than the average
estimated statewide for the same crop, for example, or they can’t collect any benefit.
 Some new biotech drought-tolerant wheat strains deliver 20% larger yields,
based on trials of 24 drought-hardy varieties in Australia. With over a third
of the world’s wheat growing regions subject to drought, and agriculture worldwide
losing more of its water sources to competing uses, scientists are focusing biotech
on drought-tolerance traits. The promising varieties won’t be grown on farms
for years, but farmers in Australia, North America and elsewhere will want them.
Other genes have been isolated that let wheat tolerate frigid temperatures,
say scientists developing biotech crops at the University of California, Davis.
Growing numbers of rice farmers are trying a system that needs less water
than is conventional to grow rice. Known as the System of Rice Intensification (SRI),
it’s being tried in both irrigated and dryland fields in China, India and elsewhere.
SRI calls for spacing plants far apart, stimulating the plants to tiller a lot of stems.
It also produces more extensive, tougher roots than in flooded paddies. The system
tends to focus, like organic farming, on encouraging crop-friendly soil organisms.
Yields over 3 metric tons per acre are common with SRI, or about the same
as the U.S. average. Reducing seed and irrigation saves costs, but wider spacing
of plants does tend to promote weed growth. See kiplinger.com/letterlinks/sri.
The impact of Corn Belt floods and rain delays on total U.S. farm income:
Fairly modest. The crops hit hardest by flooding and muddy fields...
corn and soybeans...account for less than 30% of farm receipts nationally,
even at record prices. Since those two crops are heavily insured, affected farmers
will collect insurance, direct crop subsidies plus the new farm bill’s disaster aid
on failed acres. And nationwide, corn and soybeans have gotten plentiful rains
and will typically get fair yields and very high prices. In dollars, that means...
Sales of 2008 corn and soybeans will top $100 billion, despite the floods,
and wheat sales will double to $20 billion. That’ll push U.S. farm receipts
to nearly $350 billion for this year. However, skyrocketing feed and fuel costs
will force many dairy farmers and other livestock owners to take a loss for 2008.
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 Experts’ views on the biofuels vs. food debate are diverging, not narrowing.
For example, USDA Secretary Ed Schafer and Edward Lazear, an economist
for President Bush, claim that ethanol production contributes just 2% to 3%
to the surge in world food prices. Both men promote the use of biofuels.
But livestock owners, food processors and other grain users say USDA’s estimate
measures only the small share of corn used in foods (rather than in animal feeds)
and ignores use of oilseeds for fuel plus biofuel crops’ impact on other crop prices.
Note this recent study: Keith Collins, retired USDA chief economist,
says biofuels may add about 30% to the long-term average increases in food prices
over two to three years as costs of feed slow livestock output, upping meat prices.
Coming years may bring even larger hikes. The report is sponsored by Kraft Foods.
There’s also no consensus on ethanol’s influence on gasoline prices.
Ethanol output is too small to affect global prices much: Curbing ethanol production
mandated in the U.S. may add 4¢ a gallon, says Thomas Elam of FarmEcon LLC.
That differs from an Iowa State Univ. report that says ethanol cuts 29¢-40¢ a gallon
off U.S. gasoline prices due to blending, and one by LECG analysts, who say ethanol
replaces 320 million barrels of world gasoline use, cutting crude oil prices by 28%.
Expect ethanol shipments from Brazil to rebound. With high U.S. prices
for gasoline and ethanol, Brazilian ethanol imports at under $1.90/gal. make sense,
even with U.S. import duties of 60¢/gal. And Congress will likely trim the main duty,
matching it to the U.S. fuel tax credit, which will fall to 45¢/gal. after Dec. 31.
Technical and regulatory advances to encourage biofuel use are rolling in:
Three sets of world standards have been announced for biodiesel blends
by ASTM International. For use in engines, there are separate ones for blends of 5%
and 6% to 20%...others for heating oil. It’ll be easier for automakers to OK blends
of up to 20% for their engines and for vehicle owners to trust the higher blends.
Uniform labels for biodiesel blends at the pump will take effect in Dec.
The Federal Trade Commission says the labels will specify blends of 5% to 20%,
or more than 20%...no labels for blends under 5%. Uniform formats and categories
of blends will give consumers a clearer idea of what they’re putting in their tanks.
Plus safety certification of major parts of E85 dispensers will be finished
by Underwriters Laboratories soon, though some components may still take months.
Once completed, the safety standards will let station operators put them in use
next to other fuel pumps. E85 dispensers are now commonly restricted as unsafe.
2008 wind power turbine installations will blow away previous records:
Already 1.4 gigawatts in 2008’s first quarter. One industry source projects 8 GW
for 2008, based on installers’ plans...vs. 5.2 GW in 2007, itself a record growth year.
 U.S. sugarcane production will drop by nearly 20% in the wake
of a deal by U.S. Sugar Corp. to sell off its Florida holdings to the state.
The firm has 187,000 acres of cane and processes 675,000 tons of sugar per year.
The move spells relief from a mounting supply dilemma, making it easier
for the U.S. to accept more imports from cane growing nations in coming years.
U.S. cane and beet growers’ outlook is brightening on other fronts as well.
The farm bill ensures 0.25¢/lb. more for 2008-crop sugar and 0.75¢ more for 2011.
It also provides marketing allotments at 85% of total U.S. sugar use and a new outlet
for any surplus production: USDA will buy up the excess and turn it into ethanol.
Is Congress poised to rein in speculative futures market trading? No.
But the Senate will join the House in passing a measure calling for tougher scrutiny
by the Commodity Futures Trading Commission. Lawmakers want regulators
to keep a sharper eye out for unreasonable fluctuations on energy-related contracts.
Opinions vary on whether speculators are to blame for skyrocketing prices
of commodities. Economists reviewed decades of analyses of futures trading
and sorted out the effects of the higher levels of buying by index funds since 2005.
They found that the index funds’ share of the market has been stable since 2006.
In fact, they suggest the index funds’ participation may tend to ease market volatility
for agricultural commodities because their contract purchases can counterbalance
the contract sales producers use to hedge. They caution that hiking trading margins
to curb speculative trading, for example, could drive out producers who hedge crops
to protect themselves. Read the full report at kiplinger.com/letterlinks/cftc.
The World Trade Org. may soon play a direct role in mediating disputes.
It’s mulling procedures, suggested by the U.S. and Argentina, whereby its chairman
would mediate conflicts arising when plant and animal health matters are barriers
to trade. It’d be a choice for member nations, which now have just two ways to settle
all disputes: Bilateral consultations and filing for a formal ruling by a dispute panel.
Australia’s consolidated sales of all exported wheat are coming to a fast end
with its parliament’s order to end monopoly control by the Australian Wheat Board
after nearly 70 years. U.S. negotiators have sought to end single-desk control of sales
by the AWB and the Canadian Wheat Board, too, saying they compete unfairly.
The Aussie action came over heated objections by farmers there. But in Canada…
The farmer-run entity selling Canadian wheat will evade Ottawa’s meddling
in its single-desk control of exports. The minority government in Canada pledges
to end the CWB’s monopoly, but courts are consistently siding with the farmers,
requiring national legislation to alter CWB operations…the parliament won’t do it.
 With costs soaring, how will sales of pricey organic foods hold up?
Actually, quite well, but shy of the robust 15%-20% annual growth
of the past decade. As overall retail food prices head for a 7% jump for 2008,
the surging costs of food, fuel and other necessities find organic shoppers
cutting back, too. Many are adjusting by buying in bigger lots and cooking more food
at home. Even though organic items most often cost 10%-40% more than others...
The premium paid for organic foods over conventional foods is waning
because big food companies are selling more organic foods, creating volume savings.
Look for organics to snatch 4% of grocery sales by year-end or early 2009.
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©2008 The Kiplinger Washington Editors
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Washington, July 3, 2008
