The paragraphs pouring out of Washington about the farm bill debate are more convoluted than Roswell-conspiracy theories. The best, IMHO, is our own Jim Weisemeyer, although his latest coverage has petty much exhausted the football-game metaphor, I must say.
President Bush, the referee whose whistle calls have not yet been heard by all the crowd noise, is still the number-one power broker in this game. Reason: he can and would veto a farm bill that is close to either the House-passed or Senate pending farm bill.(Hey - Maybe Jim's an Illinois fan still coming down from the weekend miracle!)
Those who doubt Bush holds the farm bill power lever should consider what one contact told me this past week:
"Anyone who thinks President Bush isn't engaged in the farm bill should talk to the CEOs who recently gathered in Washington and heard Bush answer questions about the farm bill. He no longer needs economic advisors to tell him about the bill’s shortcomings. He knows them and lists them... and if you think he won’t veto a bad bill, you haven’t heard him like I did."
What do General Motors and the Senate farm bill have in common? GM announced it had lost $39 billion during the third quarter. The Bush administration's SAP on the Senate farm bill listed a $37 billion mess -- it charged the Senate farm bill contains nearly $22 billion in budget gimmicks, and nearly $15 billion in new taxes and that "If the bill were presented to the President in its current form, his senior advisors would recommend that he veto it."
Sen. Conrad repeatedly said the veto threat was not from President Bush himself but just from "ill advised advisors." [More by subscription]
But while ag writers are understandably fascinated with the arcane and prose-worthy machinations in Congress, more than a few economists and executives are brooding over oil.
After the CEO of Total (the French oil major) last week, two more CEOs of an oil major came out this Thursday to give stark warnings that mean that peak oil is happening right now. In addition, the chief economist of the International Energy Agency (the IEA), one of the main cheerleaders of the "there's more than enough oil" camp until now, is giving an extraordinarily pessimistic interview in the Financial Times, following the recent publication of their latest World Energy Outlook. [More]I know, I know - peak-oilers have tended to be on the "enviro-fringe", and technology will find us some more oil just in the nick of time. Hey- look what happened in Brazil last week:
The discovery, while welcome news in a world where big oil strikes are rare, won't likely affect oil prices, mostly because the field will take years to develop. Even if Tupi contains the high estimate of eight billion barrels, the world consumes about 86 million barrels a day, so it may contain about three months of supply.The two seemingly unrelated developments may actually be icons for the future and the past of farming. Despite my long-held desire to see less government (and lobbyist and consultant and ...) involvement in my work, my attention is wavering on this messy legislative imbroglio.
But the strike indicates there may be more oil locked in ultradeep waters of the world, said Roger Diwan, a partner at PFC Energy, an oil-consulting firm. "It's not going to be a one-off. There may be more oil in these places than people thought," he said. He said a field of that size could end up producing about 500,000 barrels a day of oil.
The Tupi find could turn Brazil, which became self-sufficient in oil last year, into a "country that has an exporting quality like Arab countries or Venezuela," said Dilma Rousseff, the chief of staff for President Luiz Inácio Lula da Silva. [More]
However, $100 oil has captured my imagination. It seems to me the rapid increase in energy problems and the consequent impact on economies will overwhelm whether 85% or 100% of base acres are elegible for the ACR.
Consider the case of Brazil. If Brazil goes on to be an oil exporter, how vigorous will their efforts in ethanol be? If oil isn't a national problem, how much of your productive capacity can be devoted to other enterprises like, say - agriculture?
The oncoming wave of technologies to boost ag production - especially corn - requires an enormous appetite from the energy sector to prevent a price drop. $100+ oil strikes me as a good guarantee for that demand. Sustaining a world of $4 corn will not ensure the wide profits we are seeing now forever. We are already bidding up inputs to bring our margins closer to pre-ethanol levels. But gross receipts per acre approaching $900-1000 does make DCP's look trivial.
In short, the odds of the energy problem boosting our industry past the need for entitlements is increasing with every passing gasoline price hike.