Significant cuts to the agriculture budget are part of the House passed budget proposal. The budget says direct payments to farmers should be reduced and the government’s open-ended support for crop insurance should be capped.

Total spending on agricultural programs, including nutrition programs would be reduced by $178 billion over 10 years, with $30 billion of that coming from commodity programs. That would reduce spending on commodity programs by about 20% from current levels. However, the cuts would be implemented as part of the 2012 Farm Bill and would not take effect until 2013/14. EPA wants to “clarify” a key definition of what wetlands and “aquatic resources” may be subject to regulation, even if on private property.

The Environmental Protection Agency (EPA) has issued a proposed clean water protection guidance that is expected to increase the water subject to the Clean Water Act. In 2006 the U.S. Supreme Court ruled that the federal government could not use the Clean Water Act to assert control of wetlands on private property. According to the ruling, the Clean Water Act only covers navigable waters and property with significant connections to them. According to EPA Administrator Lisa Jackson, the proposed guidance is needed to clarify what constitutes “property with significant connections to navigable waters”.

EPA proposal already has critics. EPA’s Jackson says that there are about 177 million Americans that get their drinking water from sources that are not protected from pollution. But a large number of Congressmen and interest groups say that the proposed guidance is an attempt to short-circuit the process for changing policy and to significantly expand reach of the federal government. EPA has opened a 60-day public comment period on the proposed guideline. You can see it for yourself under the RESOURCES tab at www.doane.com.

FTAs move closer, with benefits for U.S. ag trade. The office of the U.S. Trade Representative has notified the House Ways and Means Committee and the Senate Finance Committee that the U.S. and Panama have completed modifications to the proposed free trade agreement (FTA) and that talks on drafting implementing legislation can begin. The notification suggests that the U.S.-Panama FTA will be submitted for Congressional approval soon. USDA has updated a study estimating potential benefits of the three pending free trade agreements, one with Panama, one with South Korea, and one with Colombia. The analysis shows that exports of U.S. agricultural products would rise by $1.9 billion annually if the agreement with South Korea is implemented. The agreement with Colombia would boost exports by $370 million and the one with Panama would boost exports by $46 million. All three agreements are expected to be approved over the next few months.

Crude oil prices have now been over $100 per barrel since late February and it looks like prices will stay high at least for the next several months. When oil prices passed $100 per barrel in 2008, world demand for oil declined. Compared to 2008, global demand in developed countries is now down 6% and demand in the U.S. is off 4%. But demand for oil in developing countries, especially China, is rising. The International Energy Agency predicts that China will account for 60% of the increase in world oil demand over the next decade. As a result, there is little the U.S. government or the U.S. consumer can do to reduce world oil demand or prices.

Tweaking and redirecting ethanol policy proposed. Agriculture Secretary Vilsack has endorsed a proposal to scale back the blenders’ credit for ethanol and redirect some of the money to renewable energy research and incentives for gas stations to invest in infrastructure to sell a broad range of ethanol blends. However, Vilsak said it would be a mistake for Congress to eliminate the 45 cent per gallon tax credit for ethanol, like it did for the biodiesel tax credit in 2009. The 45 cents per gallon tax credit for ethanol expires at the end of this year and there is increasing opposition in Congress to renewing the credit. The 54 cents per gallon tariff on ethanol imports also expires at the end of 2011.