CURRENT ISSUE ARTICLES

Financial Services Bill Approved

Senate Panel Moves to Reduce FY11 Discretionary Spending

Estate Tax Plan Introduced

Final SRA Signed by Insurance Companies

CBO Says Biofuels Industry Needs No Tax Credits

Southeast Producers to See Mid-South Operations

Sales, Shipments Steady

---

---

Financial Services Bill Approved

The Senate voted 60-39 to approve legislation (H.R. 4173) that significantly changes the regulation of banks and other financial services companies and changes the way that mortgages, credit cards and other financial products are structured and sold to consumers. President Obama is expected to sign the bill during the week of July 19, culminating a process that began in spring ’09 when the Treasury Department sent Congress the first drafts of the legislation.

The bill cleared the Senate mostly along party lines. Sens. Snowe (R-ME), Collins (R-ME) and Brown (R-MA) joined all Democrats except Sen. Feingold (D-WI) in voting for the bill. The Dodd-Frank Wall Street Reform and Consumer Protection Act establishes a new framework for federal regulators to monitor and intervene against large financial firms that pose systemic risks.

The bill addresses swaps and derivatives, which were previously unregulated products that many blamed for causing or exacerbating the financial crisis. The reform measure will give the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) joint responsibility for the products, depending on whether the underlying product is a security. Institutions deemed to be swap dealers—mostly large banks that make markets in swaps by creating and selling them—as well as “major swap participants” would have to register with either the SEC or CFTC, depending on the nature of their products but the jurisdictional lines are not perfectly clear. Derivative contracts that are accepted by a clearinghouse and approved by the SEC and CFTC will have to be cleared and traded on a registered exchange. Specifically, for CFTC-related products, clearinghouses will have to submit swaps they deem clearable to the agency for final approval. The CFTC review also will include a public comment period.

The SEC, meanwhile, will conduct similar reviews. All other products—those deemed too customized to be cleared—will be subject to significant capital and margin requirements. Those transactions will have to be reported and published through a clearinghouse or swap repository in order to establish greater transparency. Exceptions from clearing requirements will exist for swaps in which one party is an “end-user.” Bank holding companies will be subject to a “push-out” provision, meaning they will be required to spin off their derivatives dealing operations.

Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler said that US regulatory reform is “far from complete” because the anticipated legislation will need to be implemented through an exhaustive rulemaking process. Gensler has organized CFTC staff around 30 topic areas where rules will need to be written.

Senate Panel Moves to Reduce FY11 Discretionary Spending

After a spirited debate, members of the Senate Appropriations Committee agreed to reduce discretionary spending for FY11 in response to growing concern about the budget deficit.

During an unusually contentious session, Democrats and Republicans on the Committee argued over spending levels and ultimately passed an amendment calling for cuts to the Defense budget by $6 billion in FY11. The proposal was offered by Chairman Inouye (D-HI) as a compromise between his original spending plan for the Committee and ranking member Sen. Cochran's (R-MS) proposal to find $12 billion in savings across the entire discretionary budget. Although the Inouye proposal was approved, it did not represent a “compromise” as it passed 17-12 on party lines, with all Republican members voting against it.

Senate Minority Leader McConnell (R-KY) said Republicans were prepared to oppose all of this year's appropriations bills unless they reflected a plan to freeze domestic discretionary spending. Sens. McConnell, Cochran and others said that their spending proposal mirrored an amendment offered earlier this year on the floor by Sens. Sessions (R-AL) and McCaskill (D-MO) that would have cut $12 billion in FY11 or $141 billion over 10 years.

The Senate Committee then approved several appropriations measures including a FY11 Agriculture spending bill that provides $23 billion in discretionary spending for the Dept. of Agriculture and the Food and Drug Administration, which is slightly lower than the House version. The measure was approved on a party-line 17-12 vote. The bill is unlikely to be considered as stand-alone legislation.

Senate Democratic leaders are expected to lump most non-defense bills into a year-end omnibus spending package. In addition to the discretionary spending, the bill includes $109.126 billion in mandatory spending that is required under existing law. The mandatory funding level is $6 billion higher than Obama's request but nearly $12 billion higher than the FY10 level. The single largest block of funding, $68.209 billion, is devoted to the Supplemental Nutrition Assistance Program, as food stamps are now formally known.

The House bill included a similar funding level. Agricultural subcommittee Chairman Kohl (D-WI) said cuts of $500 million had been made to conservation programs in order to strike a balance. The House Agriculture Appropriations Subcommittee cut EQIP funding by $270 million when it approved its ’11 spending bill on June 30. Conservation and farm groups say they plan to fight for restoration of funds.

Estate Tax Plan Introduced

Senate Finance Committee members Lincoln (D-AR) and Kyl (R-AZ) introduced a plan that would allow the estates of taxpayers who die in ’10 to choose between the current rate of zero with a modified carryover basis or their plan which establishes a top rate of 35%. The proposal was filed as an amendment to a small business bill (H.R. 5297).

The Lincoln-Kyl proposal, backed by many business and agriculture groups, would be more generous to heirs and estate owners than a version favored by the White House and most Democrats.

The House passed a bill (HR 4154) last December that would set the estate tax at the ’09 level: a 45% top rate with a $3.5 million per person exemption. The Lincoln-Kyl proposal would gradually drop the top estate tax rate to 35%, set the per person exemption at $5 million, index it to inflation and preserve the stepped-up basis.

Under the ’01 tax law, which phased out the estate tax over the past decade, the tax is scheduled to return on Jan. 1, ’11, with a top rate of 55% and a $1 million per-person exemption.

The Lincoln-Kyl proposal, if approved, would send the small business bill to the Finance Committee for revision. The motion would instruct the committee to make up the difference in cost between the administration’s proposal, which was similar to the House-passed bill, and the Lincoln-Kyl plan.

Finance Committee Chairman Baucus (D-MT) has introduced legislation (S. 7222) that would permanently freeze the ’09 rate of 45% and index to inflation the $3.5 million exemption level.

Sen. Lincoln, who chairs the Agriculture Committee added that now is the “time to take decisive action on the estate tax, and provide the permanent solution that Arkansas's hardworking farmers and small businesses are desperately seeking.”

Final SRA Signed by Insurance Companies

Agriculture Secretary Vilsack announced that as of July 12, the new Standard Reinsurance Agreement (SRA) had been signed by all 16 private insurance companies who participated in the federal crop insurance program during the ’10 crop year.

The new SRA details the terms, roles and responsibilities for both the USDA and insurance companies that participate in the federal crop insurance program. The final agreement’s release follows two draft proposals and months of discussions with insurance companies and other stakeholders.

The new SRA generally will maintain the current Administrative and Operating (A&O) subsidy structure (which is used to reimburse the companies for operating the program and is used for agent commission), but remove the possibility of windfall government payments based on high commodity price spikes by limiting the level of A&O payments that the crop insurance industry can receive. However, an inflation factor and consideration for new business were included so that the maximum payment may reasonably increase over the length of the agreement. Other changes were made to risk sharing between the government and companies.

USDA also announced that the new crop insurance agreement generates $6 billion in budget savings. They further indicate that two-thirds of the savings will go toward paying down the federal deficit, and the remaining one-third will support high priority risk management and conservation programs.

The $2 billion in savings that will be invested in farm bill programs include releasing approved risk management products, such as the expansion of the Pasture, Rangeland, and Forage program; providing a “good producer” discount or refund, which will reduce the cost of crop insurance for certain producers; increasing Conservation Reserve Program (CRP) acreage to the maximum authorized level; investing in new and amended Conservation Reserve Enhancement Program initiatives; and investing in CRP monitoring.

The NCC sent a letter to Secretary Vilsack in April strongly urging USDA to carefully consider the baseline budget implications of any program changes. The letter noted that if such programmatic changes are necessary, USDA should structure those adjustments in a manner that does not reduce the overall baseline for commodity, insurance and conservation programs.

CBO Says Biofuels Industry Needs No Tax Credits

According to a Congressional Budget Office (CBO) study, the biofuels industry no longer needs tax credits to stimulate production. The report could impair legislative efforts to renew a 45-cents-per-gallon blenders tax credit that expires on Dec. 31.

CBO said the Renewable Fuel Standard that mandates use of biofuels has encouraged investment by guaranteeing a market for the product. CBO said while tax credits may reduce costs for biofuel producers, it is no longer needed to drive production.

The analysis was requested by Senate Energy and Natural Resources Chairman Bingaman (D-NM) who said the CBO findings show that corn ethanol, which accounts for the major portion of renewable fuels, is “now a mature technology whose market share is protected by an aggressive Renewable Fuel Standard.” Sen. Bingaman said the report should “prompt Congress to critically examine” the appropriateness of continuing the tax credit at its current level.

The CBO report said tax breaks for corn-based ethanol, cellulosic ethanol and biodiesel fuel cost federal taxpayers $6 billion in FY09. The $1-a-gallon biodiesel tax credit expired in December ’09, forcing a number of plants that produce the soybean-based fuel to either idle or close. The CBO said tax credits helped build the biofuels industry, but it predicted that the Renewable Fuel Standard — mandated by the Energy Policy Act of 2005 (PL 109-58) — will be a bigger factor in determining demand and production.

“In the future, the scheduled rise in mandated volumes would require the production of biofuels in amounts that are probably beyond what the market would produce even if the effects of the tax credits were included,” the report said. “To the extent that the mandates determine levels of production in the future, the biofuel tax credits would no longer be increasing production. However, they would still be reducing the costs borne by producers and consumers of biofuels and shifting some of those costs to taxpayers.”

The Renewable Fuels Assoc., an ethanol industry trade group, said the CBO report failed to fully weigh ethanol’s benefits vs. its cost to taxpayers.

Growth Energy, another ethanol trade group, announced it would hold a conference call to outline a strategy for “the redirection and eventual phasing out of government support for ethanol in return for a level playing field — infrastructure investments that will create competition in the fuels market and give consumers true freedom to choose their fuel.” The industry has said its growth beyond the Midwest is hindered by a poor distribution system and a paucity of gas pumps equipped to dispense E-85, a fuel blend that is 85% ethanol and 15% gasoline.

Southeast Producers to See Mid-South Operations

Southeast cotton producers will see cotton operations in the Mid-South on July 18-22, as part of the NCC’s Producer Information Exchange (PIE) program.

Sponsored by Bayer CropScience through a grant to The Cotton Foundation, the PIE program is now in its 22nd year of helping its US cotton producer participants improve yields and fiber quality. Specifically, the program helps producers improve their overall efficiency by: 1) gaining new perspectives in such fundamental practices as land preparation, planting, fertilization, pest control, irrigation and harvesting; and 2) observing firsthand the unique ways in which their peers are using new and existing technology.

The Southeast cotton producers will begin their tour on July 19 in Clarksdale, MS, at Crop Production Services, Inc., where they will hear presentations from Bayer’s Macon LaFoe and from Dr. Angus Catchot, an Extension entomologist with Mississippi State U. The group also will tour individual farms in the Coahoma County area. The next day  includes an overview of Delta cotton production and the Delta Council from Chip Morgan, that organization’s executive vice president; a presentation from Staplcotn Cooperative; and a visit to the Stoneville breeding facility at the Agricenter in Cordova, TN.

On July 21, the participants will visit Bayer’s test facility on the Sam Stuckey farm in Clarkedale, AR, before touring the farm of NCC Vice Chairman Charles Parker in Senath, MO, for a look at test plots, irrigation, and a discussion of round module picker technology. That day’s events will conclude in Senath with a tour of Farmer’s Union Gin and a discussion of the modifications and economics of round module ginning. The group will conclude their tour on July 22 with a visit to the No Till Field Day in Milan, TN.

The Southeast producer participants include: from Florida – Shannon Nixon, Baker; from Georgia – Carl Dixon II, Alapaha; Al Mathis, Arlington; and Jon Thompson, Norman Park; from North Carolina – Sam Fulton, Laurinburg; and Mark Lassiter, Conway; and from Virginia – Lucas Braswell, Windsor; Mike Ellis, Suffolk; and Cliff Fox, Capron.

In the other three PIE tours this season, Southwestern producers will visit California on July 25-30; Mid-South producers will travel to North Carolina and Virginia on Aug. 8-13; and Far Western producers will tour Texas on Aug. 22-27.

Upon completion of this year’s four tours, the PIE program will have exposed nearly 900 US cotton producers to innovative production practices in regions different than their own.

Sales, Shipments Steady

Net export sales for the week ending July 8 were 111,800 bales (480-lb). This brings total ’09-10 sales to approximately 13.8 million bales. Total sales at the same point in the ’08-09 marketing year were approximately 14.2 million bales. Total new crop (’10-11) sales are 3.0 million bales.

Shipments for the week were 174,200 bales, bringing total exports to date to 11.1 million bales, compared with the 12.4 million bales at the comparable point in the ’08-09 marketing year. With less than a month remaining in the marketing year, weekly shipments must average roughly 399,900 bales to reach the USDA projection of 12.3 million bales.

Return to Top