The Bush administration last week proposed ending farm subsidies for an estimated 80,000 wealthy individuals as part of a broad plan that would close loopholes and cut traditional farm programs by $4.5 billion over the next 10 years.The proposal unveiled by Agriculture Secretary Mike Johanns was the administration’s opening move in what will be a lengthy tug of war with Congress over a new multi-year farm bill. The current bill, one of the most generous to farmers in history, expires September 30.

Debate on the new legislation comes at a time of major changes in agriculture. Booming demand from new ethanol plants has pushed corn prices to near-record levels. At the same time, U.S. trade partners are threatening retaliation unless the United States curbs crop subsidies that are said to promote overproduction here and low prices for farmers abroad. The current farm programs, which favor large growers of a few crops in a handful of states, retain strong backing in the congressional agricultural committees.

The administration’s plan appeared to be a delicately balanced attempt to parry complaints from U.S. trading partners while at the same time broadening political support in Congress for reforms. But aspects of the plan, especially the proposal to cut off payments to farmers earning more than $200,000 a year, are already bothering some farm groups. Mary Kay Thatcher, a lobbyist with the American Farm Bureau Federation, said farmers would have “serious concerns” about that provision. “You have to get a bigger economy of scale these days to make it in farming,” Thatcher said. “We are all for small farmers, but we are also for what makes economic sense.”

USDA faces a tough fight in Congress this spring, with an especially stiff challenge to the provision eliminating payments to wealthy producers. Under the proposal, subsidies would go only to growers who make less than $200,000 in adjusted gross income, a restriction affecting 71,800 farmers of the two million who declared farm income in 2003. The current income cap is far more — $2.5 million — and it disappears altogether if at least 75 percent of a grower’s income is farm-related.

Lawmakers from agricultural states continue to push forward efforts to bolster the production and use of alternative fuels in the wake the calls for such action by President Bush in last week’s State of the Union message. Some lawmakers have introduced legislation to raise the renewable fuels standard to 60 billion gallons of ethanol and biodiesel by 2030. The plan also would push automakers to boost production of flex-fuel vehicles with a goal that nearly all vehicles sold in the United States in a decade are flex-fuel vehicles.

Senate Agriculture Chairman Tom Harkin (D-Iowa) said efforts to bolster alternative fuel use will require “dramatic new investments,” and new research efforts will hopefully be added into the new farm bill.

Senator Richard Lugar (R-Ind.) predicted there will be a new variable tax incentive for production of alternative fuels that would fluctuate depending on the price of oil. Lugar noted: “The [agriculture] budget is cut routinely in terms of basic research. That has to stop. And this year, thank goodness, it will stop if the president supports what he has indicated he’s going to in the State of the Union.”

Brazil’s biodiesel demand could limit the country’s soybean export capacity in 2007-08, according to a report from Dow Jones Newswires.If soyoil demand moves above 250,000 tonnes in 2007-08, then the country’s soybean exports would likely decline as local companies turn to crushing more soybeans for the domestic biodiesel market, said the Brazilian Association of Vegetable Oil Industries (Abiove). Brazil’s biodiesel industry is expanding as local producers gear up production before a mandatory 2% mix of the biofuel in all diesel fuel goes into effect in January 2008.

The current estimate from Abiove for soybean exports is 25.5 million tonnes in market year 2007-08.Abiove’s current projections for market year 2007-08 soyoil exports are 1.85 million tonnes, out of an estimated total production of 5.35 million tonnes. Domestic soyoil consumption is expected to hit 3.5 million tonnes, Dow Jones reported.

However, Abiove’s current projection of soy oil for biodiesel use also does not factor in the use of soyoil for H-Bio, an innovative diesel-vegetable oil blend invented by Brazil’s state-owned oil firm Petrobras SA. Last year, Petrobras said it planned to use 256 million liters of vegetable oil in the production of H-Bio in 2007. However, it remains to be seen whether Petrobras will produce this amount of H-Bio, according to the report.

Argentina reported its first finding of Asian soybean rust last week in the Entre Rios province. Last season, the first discovery was reported on January 23 in Corrienties province. Last season, Entre Rios’ first occurrence of Asian soybean rust was not until March 29 when most of the soybeans were in the late stages of filling with harvest underway. Last season, the disease was reported in southern Santa Fe province two days later and two weeks later the disease was discovered in Cordoba and Buenos Aires provinces.

Currently, Entre Rios soybeans are more vulnerable to damage given that much of soybeans are in the flowering stage of development. Entre Rios’ soybean production accounted for 8% of Argentina’s total production last season.

The soy complex closed up on February 1 reflecting stronger-than-expected export sales and speculative buying. The soybean market may be exhibiting some concern about how large the shift in acreage from soybeans to corn might be this year. Drier, warmer growing conditions in Argentina may also be providing some support. The underlying soybean complex fundamentals are burdensome in the current marketing year. However, the longer-term fundamentals should tighten as acreage shifts from soybeans to corn and expanding biodiesel production eats into vegetable oil stockpiles. March bean futures closed up $0.73 finishing at $265.10; May was $1.10 higher, closing at $270.98; and July gained $1.10 ending at $275.85. March meal was up $0.55 closing at $229.17; May was $0.44 higher, finishing at $234.68; and July increased $0.22 to finish at $239.53. March oil closed $5.29 higher to finish at $652.12; May was up $6.17, closing at $663.36; and July gained $6.39, ending at $673.51.

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