Washington Insider--Wednesday

By DTN's Washington Insider

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Commodity Loan Interest Rates Rise for September

Commodity loans disbursed in September will carry an interest rate of 1.375%, up from 1.250% in August, according to USDA's Commodity Credit Corporation (CCC).

The CCC borrowing rate-based charge for September is 0.375%, up from 0.250% in August. Interest rates for commodity and marketing assistance loans are required to be 100 basis points - or 1% - higher than the CCC borrowing rate-based charge per a provision in the 1996 farm bill.

Interest rates for Farm Storage Facility Loans approved for September are as follows: 2.000% with 7-year loan terms, down from 2.125% in August; 2.250% with 10-year loan terms, down from 2.375% in August; 2.250% with 12-year loan terms, down from 2.500% in August. The interest rate for 15-year Sugar Storage Facility Loans for September is 2.375%, down from 2.625% in August.

This is the second time this year CCC has increased the interest rate on commodity loans. The first increase was from 1.125% in January to 1.250% in February. The 1.375% rate in effect for September is the highest interest rate since January 2010 when it was 1.375%.

For 2014 crops, farmers obtained marketing assistance loans on 574 million bushels of corn, 80.1 mb of soybeans and 42.8 mb of wheat. Those marked the highest totals since the 2011 crop year when marketing assistance loans were taken out on 574.1 mb of corn and 98.5 mb of soybeans. Producers obtained marketing assistance loans on 36 mb of 2011-crop wheat. Already, producers have taken out loans on 3 mb of 2015-crop wheat.

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More Open U.S. Sugar Market Sought by Australia

Trade barriers for sugar are one of the remaining obstacles in Trans-Pacific Partnership (TPP) negotiations and the Australia sugar industry is arguing that relaxing restrictions to entry in the U.S. market would not harm the U.S. sugar support programs, or U.S. producers.

A mechanism to allow Australian producers to tap into the U.S. market's increasing demand could be created, according to the head of economics for Australia's cane growers. The U.S. market is projected to import more than 1 trillion tons of sugar over the next decade -- proof, proponents say, that the U.S. market is ripe for more supply.

U.S. sugar refiners are operating well below their capacity, say the Australians, who see a potential for progress on sugar, in particular during the closing rounds of TPP negotiation. They contend that allowing more imports from Australia can occur without imperiling the U.S. sugar program, or provisions of the farm bill.

U.S. producers contend Australia already enjoys robust access to U.S. markets -- more than 36 of the 40 countries with import quotas -- and assert that increasing access further would lead to reduced imports from Mexico, which has indicated it would retaliate against such a reduction by targeting other agricultural imports from the United States.

Mexico has warned that if Australia gets more access to the U.S. sugar market from any decrease in Mexico's access, they would retaliate against imports of U.S. high fructose corn syrup.

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Washington Insider: Food Beliefs and Ideology

The Wall Street Journal recently published a letter from Peter Coclanis, a correspondent who lives and teaches in Chapel Hill, N.C. He presents a somewhat unusual perspective on agriculture and ag technology in terms of the achievements of American farmers.

He sets the stage for his observations by calling Chapel Hill the "buckle of the Research Triangle foodie belt, a virtual Valhalla for hard-boiled locavores, iron-fisted organics, no-nonsense vegans, and determined devotees of slow food. Boutique farmers, community supported agriculture groups, local farmers' markets and pricey gourmet restaurants are in. 'Factory' farms, fast food, dollar meals and supermarkets are out -- at least among food snobs and aware students," who he thinks are everywhere, so his contrary views are a hard sell, he said.

Nevertheless, he talks up the benefits that flow from the historical success of the U.S. agricultural sector, which was organized along market lines almost from the start -- as enterprising, commercially-minded farmers created a system that protected and promoted private property rights.

He also thinks well of ag's social contract with federal and state governments who supported agriculture's scientific knowledge and export markets and then benefitted from efficient production and low cost food and fiber.

He claims the result today is the world's strongest agricultural economy, with its modest number of large, super-efficient enterprises. The largest 4% of U.S. farms account for two-thirds of farm output, he said, and the largest 0.5% account for a third as much. U.S. agriculture produces huge amounts of nutritious plant and animal outputs (worth $478 billion in 2013) at very cheap cost.

A main benefit is the fact that Americans spend less than 10% of their disposable income on food while others in many developed countries -- including the Netherlands, Belgium, France and New Zealand -- spend at least twice that. People in less-developed countries spend four to eight times as much.

The somewhat strange point is that this success has become increasingly unpopular -- and, to say the least, impolitic. Still, the inconvenient truth is that well organized U.S. farms tend to be larger and far more productive than the beloved smaller low-tech operations, especially organic farms. The yields on these farms, according to recent studies, including in the science journal Nature, range between 5% and 38% lower than yields on non-organics, depending on individual crop and tillage method.

He said the typical response to his descriptions is disbelief or insouciance. To many folk in Chapel Hill, Big Agra is the enemy, foisting endless amounts of tasteless food on unenlightened consumers, meanwhile despoiling the environment through vast quantities of animal waste and excessive use of herbicides, pesticides and synthetic fertilizers.

He contests such criticisms. Most experts on food point out that taste is more related to freshness than to organic or inorganic status or even production site. Given the high quality of American logistics, fresh, tasty food produced by large agricultural enterprises is readily available almost everywhere in the country, even if it is produced thousands of miles away.

Coclanis said the indictment he hears most often is that American food is too cheap, largely because journalist Michael Pollan says so. He once suggested we should pay something like $8 for a dozen eggs and perhaps $3.90 for a pound of peaches in order to support local food systems. Coclanis doubts that the 45.3 million Americans living beneath the poverty line -- 14.5% of the country's population and almost 18% of North Carolinans -- agree.

He noted the organic sector accounted for a small 4% of "at home food sales" in 2012 -- and Costco likely has already surpassed Whole Foods as the biggest player in this niche market, with Walmart coming up fast.

This means a key issue is whether unsupported beliefs like those he encounters will be allowed to support policies that damage efficiency and ag's capacity to meet future needs. For example, the next generation of genetically engineered organisms is expected to include numerous examples of plants that are healthier, use less water, and will sharply reduce national pesticide use -- and, will be central to the capacity to provide for economic and population growth. It is to be hoped that Coclanis and his cohorts can fend off the food elitists' attacks on technology and support the industry's investments to support the necessary growth, Washington Insider believes.

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(GH/CZ)

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