Commentary: A big week in policy issues leaves U.S. agriculture "as is"
July 31, 2008
by Ron Sterk
This week’s decision from the U.S. Department of Agriculture not to allow early release of Conservation Reserve Program acres illustrates the many voices that are at work within the U.S. to influence agricultural policy, production and ultimately prices. At the same time, the breakdown and possible failure of World Trade Organization talks show the global push-pull on international and domestic agricultural policy. The much-anticipated ruling from the Environmental Protection Agency on a request to halve the U.S. renewable fuels mandate has drawn similar opinionated interest.
In the C.R.P. decision, the U.S.D.A. said, "We believe the decision . . . strikes the best possible balance between supporting programs that protect our natural resources and meeting the nation’s need for grain production."
The Alliance for Agricultural Growth & Competitiveness, which consists of 13 grain, oilseed, meat and poultry associations, strongly supported an early release of C.R.P. acres without penalty. "The fundamental question is whether or not the U.S. should be idling scarce land resources, many of which are neither highly erodible nor environmentally sensitive, as a key U.S. industry is faced with such circumstances (tight supplies, rising consumer prices and the threat of inflation)," the group said.
Corn futures traded higher on the news that the early C.R.P. release was a no-go.
On the other end of the spectrum, the rather quick demise after just nine days of W.T.O. trade talks, that actually began seven years ago, in Geneva was seen by some as a boost to U.S. production agriculture, although not necessarily to processors and end users. The U.S. had offered to severely limit "trade-distorting farm subsidies" as its contribution to the talks. But several developing nations said U.S. offers were not enough. China blamed the U.S. and the European Union. Japan blamed China and India.
Back in the U.S., the next major policy decision concerns a request from Texas to cut in half the 9 billion gallon Renewable Fuels Standard (R.F.S.) because of harm caused by corn prices that it says were driven higher by ethanol use. The E.P.A. was to have ruled on the request on June 24, the end of the 90-day review period. But more than 1,500 comments from farm groups to environmental interests, have delayed the decision, which now is expected in early August. A move by the E.P.A. to reduce the R.F.S. most assuredly will pressure corn and soybean (soybean oil) prices as key demand areas are reduced. If the E.P.A. leaves the R.F.S. unchanged, prices should hold at least steady.
Major policy issues, which so far have changed nothing, have added just a bit more uncertainty to already volatile commodity markets this summer.