WPI Spotlight

Spotlight

Eulogizing Direct Payments

Given the federal government's current fiscal condition, the newly imposed sequestration of federal spending, mounting federal debt and several years of record high commodity prices, farmers' direct payments are doomed. They are the favorite cost-cutting target of virtually every budgeter who puts pen to paper to produce a fiscal blueprint, including the Senate and House Agriculture Committees, the Senate and House Budget Committees, the Office of Management and Budget and the Senate Democratic leadership in its sequester avoidance plan. Because of the 2012 Farm Bill's one-year extension, direct payments are like a condemned prisoner waiting out his days on death row. They may be terminated this year -- or, like a prisoner getting a reprieve from the governor -- there may be one more extension. Ultimately, however, they face a lethal fate.

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For and Against

In mid-March many U.S. farmers face an important deadline. They must decide by 15 March whether or not to sign up for crop insurance for their corn, soybean and/or spring wheat crops. The mix of relatively high crop prices, memories of last year's drought and concern about this year's growing season make this a key decision for many farmers. Farmers must decide if they want to insure crop yields or crop revenues and what level of coverage they want.

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Wheat's Loss to Corn and Soybeans

The ability of scientists to introduce genetic traits from outside sources into common agricultural crops (GMO crops) has caused more controversy during the last two decades than any other factor related to agriculture. One notable exception to the GMO revolution in crop production has been wheat.

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Insufficient Evidence of Economic Harm

The U.S. Environmental Protection Agency (EPA) today denied requests from several governors and the livestock industry to waive the Renewable Fuel Standard (RFS). EPA received more than 30,000 comments on the waiver request. WPI predicted that EPA would deny the waiver based on the structure of the Agency's request for comments, which evaluated the following:

(a)  Whether compliance with the RFS would severely harm the economy of Arkansas, North Carolina, other states, a region, or the United States;

(b)  whether the relief requested will remedy the harm;

(c)  to what extent, if any, a waiver would change demand for ethanol and affect prices of corn, other feedstocks, feed, and food;

(d)  the amount of ethanol that is likely to be consumed in the U.S. during the relevant time period, based on its value to refiners for octane and other characteristics and other market conditions in the absence of the RFS volume requirements; and

(e)  if a waiver were appropriate, the amount of required renewable fuel volume appropriate to waive, the date on which any waiver should commence and end, and to which compliance years it would apply.

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Post-Election Predictions

It was a status quo election from the standpoint of political control in Washington, but that does not mean that things stand still or can now move forward. There are many nuances to how policy will play out, or not, in the year ahead before the 2014 midterm elections.

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Unintended Consequences

The hue and cry over the ethanol use mandate in the U.S. Renewable Fuel Standard (RFS) and the possibility that the Russian government might intervene in that country's wheat exports have caused us to reflect on the relationship between governments, market prices and the free movement of goods from where they are available to where they are needed and wanted. These are weighty topics that periodically appear in one form or another. Whenever they do appear with enough critical mass to affect markets and trade, we usually rise up to complain philosophically about the concept that governments can allocate resources better than markets can. And we complain about the inevitable unintended consequences whenever governments attempt to control and manipulate markets and trade. There are always unintended consequences.

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