Five of the nation's top agricultural production states, Iowa, Illinois, Minnesota, Missouri, and Wisconsin have traditionally relied on the Upper Mississippi River-Illinois Waterway (UMR-IWW) navigation system as their principal conduit for export-bound agricultural products mostly bulk corn and soybeans. The low-cost, high-volume capability of barge transportation has long provided an important competitive advantage for U.S. agricultural products in international markets. Agricultural barge freight on the UMR-IWW grew rapidly for several decades in the post-WWII era, but has leveled off since the early 1980s. There is disagreement over the cause for this lack of growth in barge demand.

Federal policy has played a key role in the emergence of the U.S. biofuels industry. Policy measures include minimum renewable fuel usage requirements, blending and production tax credits, an import tariff, loans and loan guarantees, and research grants. This report focuses on the mandated minimum usage requirements-referred to as the Renewable Fuel Standard (RFS)- whereby a minimum volume of biofuels is to be used in the national transportation fuel supply each year. It describes the general nature of the RFS mandate and its implementation, and outlines some emerging issues related to the sustainability of the continued growth in U.S. biofuels production needed to fulfill the expanding RFS mandate, as well as the emergence of potential unintended consequences of this rapid expansion.

Since the late 1970s, U.S. policy makers at both the federal and state levels have enacted a variety of incentives, regulations, and programs to encourage the production and use of agriculture-based renewable energy. Motivations cited for these legislative initiatives include energy security concerns, reduction in greenhouse gas emissions, and raising domestic demand for U.S.-produced farm products. Agricultural households and rural communities have responded to these government incentives and have expanded their production of renewable energy, primarily in the form of biofuels and wind power, every year since 1996. The production of ethanol (the primary biofuel produced by the agricultural sector) has risen from about 175 million gallons in 1980 to 3.9 billion gallons per year in 2005. However, U.S. ethanol production capacity has been expanding rapidly. Current ethanol production capacity is 5.4 billion gallons per year (as of December 29, 2006), with another 6.0 billion gallons of capacity under construction and potentially online by early 2008. Biodiesel production is at a much smaller level, but has also shown growth rising from 0.5 million gallons in 1999 to an estimated 75 million gallons in 2005. Wind energy systems production capacity has also grown rapidly, rising from 1,706 megawatts in 1997 to an estimated 10,492 megawatts by October 23, 2006. Despite this rapid growth, agriculture- and rural-based energy production accounted for only about 0.6% of total U.S. energy consumption in 2004.

According to USDA's Economic Research Service (ERS), national net farm income-a key indicator of U.S. farm well-being-is forecast at a record $122.2 billion in 2012, up 3.7% from last year's record. Record gross revenues from crop sales (forecast at $222.1 billion), coupled with record revenues (forecast at $34.1 billion) from farm-related income-a category that includes crop insurance indemnity payments as well as income from custom work, machine hire, etc.-pushed total gross cash income to a record $433.6 billion (up 5.5%). This more than offset flat revenues from livestock markets ($165.8 billion), and a 6.6% increase in input costs (forecast at $294.2 billion) to account for the record forecast for overall net returns. When measured in cash terms, net cash income in 2012 is also projected record large at $139.3 billion, up 3.4% from last year's record. However, when adjusted for inflation, current farm income forecasts remain well below the peak period of the early 1970s. In addition to record farm income, farm wealth is also at record levels. Farm asset values-which reflect farm investors' and lenders' expectations about long-term profitability of farm-sector investments-are expected to rise nearly 7% in 2012 to a record $2,551 billion for a fifth consecutive year of gains. Farm land cash markets have continued to see gains related to strong crop prices in 2012. Since 2008, farm asset values are up 26% while farm debt has risen by only 8%. As a result, the farm debt-to-asset ratio has declined steadily since 2008 and is expected to fall to the lowest level on record in 2012 at 10.2%. The 2012 outlook for a second year of strong farm income occurs in spite of slow growth in the domestic economy and the most severe and extensive drought in at least 25 years. The ongoing drought is expected to destroy or damage a significant portion of the U.S. corn and soybean crops, with deleterious impacts on all U.S. livestock sectors-cattle, hogs, poultry, and dairy-and with the potential to affect food prices at the retail level. Yet, drought-induced large increases in the value of this year's crops, plus substantial crop insurance indemnity payments, are expected to more than offset rising production expenditures for both crop and livestock activities and generate record farm income. Government farm payments, at $11 billion (up 6%), are expected to remain relatively small in 2012 (second-lowest total since 1997) as high commodity prices shut off payments under the price-contingent marketing loan and counter-cyclical payment programs. These data suggest a strong financial position in 2012 for the agricultural sector as a whole relative to the rest of the U.S. economy, but with substantial regional variation. In general, the increase in expenses will affect livestock producers more harshly than crop producers. Cash grain farmers in the Corn Belt and Northern Plains are expected to experience a second year of record revenues despite the drought. In contrast, livestock and poultry feeders are experiencing record high feed costs that have narrowed or eliminated profit margins despite record high wholesale and retail prices for their end products. In addition, the severe nationwide drought has limited grazing opportunities and hay production for cattle ranchers in the affected regions and led to substantial herd liquidation. The lingering effects of the drought are expected to spill over into next year, when record-high market prices will likely motivate large feed grain and oilseed plantings. Eventual 2013 agricultural economic well-being will hinge greatly on spring crop planting and summer growing weather, as well as both domestic and international macroeconomic factors including economic growth and consumer demand.

Record Midwest heat in June and July (2012) sparked the worst U.S. drought since 1956, causing damage to major field crops. This situation has contributed to record U.S. prices for corn and soybeans in both cash and futures markets in 2012, and has fanned the fears of food price inflation reminiscent of 2008. The heightened commodity price volatility of 2008 and the subsequent acceleration in U.S. food price inflation associated with commodity market shifts raised concerns and generated many questions about farm and food price movements by Members of Congress and their constituents. However, historical evidence suggests that retail prices for processed food products are driven more by consumer demand (strongly linked to general economic conditions), than by price changes in raw commodity markets, although this linkage varies with the degree of raw commodity content in the retail product. This report focuses instead on the nature and measurement of retail food price inflation and its relationship to consumers. During the 1991 to 2006 period, U.S. food prices were fairly stable-annual food price inflation, as measured by the Consumer Price Index (CPI) for all food (excluding alcoholic beverages), averaged a relatively low 2.5%. However, several economic factors emerged in late 2005 that began to gradually push market prices higher for both raw agricultural commodities and energy costs, and ultimately retail food prices. U.S. food price inflation increased at a rate of 4% in 2007 and at 5.5% in 2008-the highest since 1990 and well above the general inflation rate of 3.8%. The situation of sharply rising prices came to a sudden halt in late 2008 when the financial crisis hit U.S. markets leading to a severe economic recession. Annual food price inflation dropped to 1.8% in 2009 and 0.8% in 2010, before rising to 3.7% in 2011 driven by improving U.S. and global economic conditions. USDA projects that annual food price inflation will range from 2.5% to 3.5% in 2012 and rise to 3%-4% in 2013. The All-Food CPI has two components-food-at-home and food-away-from-home. The food-at home CPI is most representative of retail food prices and is significantly more volatile than the food-away-from-home index. The food-at-home CPI is projected in a range of 3% to 4% for 2013, compared with a 2.5% to 3.5% annual inflation rate for food-away-from home prices. This difference is partially explained by the larger share of farm products in the final price of retail foods than in food-away-from home. Farm product prices are, in general, substantially more volatile than the other marketing and processing costs that enter into retail or ready-to-eat foods. Many wages and salaries, as well as federal programs (including several domestic food assistance programs), are linked to price inflation through escalation clauses in order to retain consumer purchasing power. For households where income and federal benefits do not keep up with price inflation, declines in purchasing power are real and immediate. However, even for households with escalation clauses, a time lag usually occurs between the time the price inflation is measured and the time when the wage or program benefit is adjusted upward to compensate. The 2008-2009 global economic crisis-which involved higher retail prices and unemployment, income loss, and lower effective household purchasing power-resulted in higher participation rates in the federal food and nutrition programs since then. As a result, USDA's food and nutrition assistance programs have seen a tremendous expansion in use-federal expenditures totaled $103.3 billion in FY2011 and marked the 11th consecutive year in which food and nutrition assistance expenditures exceeded the previous historical record. Since FY2000, expenditures for food and nutrition assistance have more than tripled.

Since the late 1970s, U.S. policymakers at both the federal and state levels have authorized a variety of incentives, regulations, and programs to encourage the production and use of agriculture-based biofuels-i.e., any fuel produced from biological materials. Initially, federal biofuels policies were developed to help kick-start the biofuels industry during its early development, when neither production capacity nor a market for the finished product was widely available. Federal policy (e.g., tax credits, import tariffs, grants, loans, and loan guarantees) has played a key role in helping to close the price gap between biofuels and cheaper petroleum fuels. Now, as the industry has evolved, other policy goals (e.g., national energy security, climate change concerns, support for rural economies) are cited by proponents as justification for continuing or enhancing federal policy support. The U.S. biofuels sector responded to these government incentives by expanding output every year from 1980 through 2011 (with the exception of 1996), with important implications for the domestic and international food and fuel sectors. Production of the primary U.S. biofuel, ethanol (derived from corn starch), has risen from about 175 million gallons in 1980 to nearly 14 billion gallons in 2011. U.S. biodiesel production (derived primarily from vegetable oil), albeit much smaller, has also shown strong growth, rising from 0.5 million gallons in 1999 to a record 969 million gallons in 2012. Despite the rapid growth of the past decades, total agriculture-based biofuels consumption accounted for only about 8% of U.S. transportation fuel consumption (9.7% of gasoline and 1.5% of diesel) in 2012. Federal biofuels policies have had costs, including unintended market and environmental consequences and large federal outlays (estimated at $7.7 billion in 2011, but declining to $1.3 billion in 2012 with the expiration of the ethanol blender's tax credit). Despite the direct and indirect costs of federal biofuels policy and the relatively small role of biofuels as an energy source, the U.S. biofuels sector continues to push for federal involvement. But critics of federal policy intervention in the biofuels sector have also emerged. Current issues and policy developments related to the U.S. biofuels sector that are of interest to Congress include: Many federal biofuels policies require routine congressional monitoring and occasional reconsideration in the form of reauthorization or new appropriations; The 10% ethanol-to-gasoline blend ratio-known as the "blend wall"-poses a barrier to expansion of ethanol use. The Environmental Protection Agency (EPA) issued waivers to allow ethanol blending of up to 15% (per gallon of gasoline) for use in model year 2001 and newer light-duty motor vehicles. However, the limitation to newer vehicles, coupled with infrastructure issues, could limit rapid expansion of blending rates; The slow development of cellulosic biofuels has raised concerns about the industry's ability to meet large federal usage mandates, which in turn has raised the potential for future EPA waivers of mandated biofuel volumes and has contributed to a cycle of slow investment in and development of the sector. In 2012, the expiration of the blender tax credit, poor profit margins (due primarily to high corn prices), and the emerging blend wall limitation have contributed to a drop-off in ethanol production and have generated considerable uncertainty about the ethanol industry's future.

On July 24, 2006, the WTO's Director General announced the indefinite suspension of further negotiations in the Doha Development Agenda or Doha Round of multilateral trade negotiations. The principal cause of the suspension was that a core group of WTO member countries - the United States, the European Union (EU), Brazil, India, Australia, and Japan - known as the G-6 had reached an impasse over specific methods to achieve the broad aims of the round for agricultural trade: substantial reductions in trade-distorting domestic subsidies, elimination of export subsidies, and substantially increased market access for agricultural products. The WTO is unique among the various fora of international trade negotiations in that it brings together its entire 149-country membership to negotiate a common set of rules to govern international trade in agricultural products, industrial goods, and services. Agreement across such a large assemblage of participating nations and range of issues contributes significantly to consistency and harmonization of trade rules across countries. Regarding agriculture, because policy reform is addressed across three broadly inclusive fronts - export competition, domestic support, and market access - WTO negotiations provide a framework for give and take to help foster mutual agreement. As a result, the Doha Round represents an unusual opportunity for addressing most policy-induced distortions in international agricultural markets. Doha Round negotiators were operating under a deadline effectively imposed by the expiration of U.S. Trade Promotion Authority (TPA), which permits the President to negotiate trade deals and present them to Congress for expedited consideration. To meet congressional notification requirements under TPA, an agreement would have to have been completed by the end of 2006. That now appears unlikely. TPA expires on June 30, 2007, and most trade experts and officials think that the authority would not be renewed. As a result of the suspension of the negotiations, a major source of pressure for U.S. farm policy change will have dissipated. The current farm bill expires in 2007, and many were looking to a Doha Round agreement to require changes in U.S. farm subsidies to make them more compatible with world trade rules. The option of extending the current farm law appears strengthened by the indefinite suspension of the Doha talks. The United States must still meet obligations under existing WTO agricultural agreements, which limit trade-distorting spending to $19.1 billion annually. Some trade analysts think that, now that the Round has been suspended, there could be an increase in litigation by WTO member countries that allege they are harmed by U.S. farm subsidies. This report assesses the current status of agricultural negotiations in the Doha Round; traces the developments leading up to the December 2005 Hong Kong Ministerial; examines the major agricultural negotiating proposals; discusses the potential effects of a successful Doha Round agreement on global trade, income, U.S. farm policy, and U.S. agriculture; and provides background on the WTO, the Doha Round, the key negotiating groups, and a chronology of key events relevant to the agricultural negotiations. The report will be updated.

Agriculture requires energy as an important input to production. Agriculture uses energy directly as fuel or electricity to operate machinery and equipment, to heat or cool buildings, and for lighting on the farm, and indirectly in the fertilizers and chemicals produced off the farm. In 2002, the U.S. agricultural sector used an estimated 1.7 quadrillion Btu of energy from both direct (1.1 quadrillion Btu) and indirect (0.6 quadrillion Btu) sources. However, agriculture's total use of energy is low relative to other U.S. producing sectors. In 2002, agriculture's share of total U.S. direct energy consumption was about 1%. Agriculture's shares of nitrogen and pesticide use ? two of the major indirect agricultural uses identified by the U.S. Dept of Agriculture (USDA) ? are signficantly higher at about 56% and 67%, respectively.

In late 2002, Brazil initiated a World Trade Organization (WTO) dispute settlement case (DS267) against specific provisions of the U.S. cotton program. On September 8, 2004, a WTO dispute settlement (DS) panel ruled against the United States on several key issues in case DS267. The United States appealed the case to the WTO's Appellate Body (AB) which, on March 3, 2005, confirmed the earlier DS panel findings against U.S. cotton programs. Key findings include (1) U.S. domestic cotton subsidies have exceeded WTO commitments of the 1992 benchmark year, thereby losing the protection afforded by the "Peace Clause," which shielded them from substantive challenges; (2) the two major types of direct payments made under U.S. farm programs - Production Flexibility Contract payments of the 1996 Farm Act and the Direct Payments of the 2002 Farm Act - do not qualify for WTO exemptions from reduction commitments as fully decoupled income support and should therefore count against the "Peace Clause" limits; (3) Step-2 program payments are prohibited subsidies; (4) U.S. export credit guarantees are effectively export subsidies, making them subject to previously notified export subsidy commitments; and (5) U.S. domestic support measures that are "contingent on market prices" have resulted in excess cotton production and exports that, in turn, have caused low international prices and have resulted in "serious prejudice" to Brazil.

Under the World Trade Organization's (WTO's) Agreement on Agriculture (AA), member countries agreed to general rules regarding disciplines on domestic subsidies (as well as on export subsidies and market access). The AA's goal was to provide a framework for the leading members of the WTO to make changes in their domestic farm policies to facilitate more open trade. Under the AA, domestic spending is disaggregated according to those outlays that have the greatest potential to distort agricultural markets (i.e., amber box) and therefore are subject to spending limits, and more benign outlays (i.e., which cause less market distortion) that are exempted from spending limits under green box, blue box, de minimis, or special and differential treatment exemptions.

Part of the Government Series, Energy: from TheCapitol.Net

Biofuels have grown significantly in the past few years as a component of U.S. motor fuel supply. Current U.S. biofuels supply relies primarily on ethanol produced from Midwest corn. Today, ethanol is blended in more than half of all U.S. gasoline (at the 10% level or lower in most cases). Federal policy has played a key role in the emergence of the U.S. biofuels industry in general, and the corn ethanol industry in particular. U.S. biofuels production is supported by federal and state policies that include minimum usage requirements, blending and production tax credits, an import tariff to limit importation of foreign-produced ethanol, loans and loan guarantees to facilitate the development of biofuels production and distribution infrastructure, and research grants.

Since the late 1970s, U.S. policy makers at both the federal and state levels have enacted a variety of incentives, regulations, and programs to encourage the production and use of agriculture-based renewable energy. Motivations cited for these legislative initiatives include energy security concerns, reduction in greenhouse gas emissions, and raising domestic demand for U.S.-produced farm products.

Agricultural households and rural communities have responded to these government incentives and have expanded their production of renewable energy, primarily in the form of biofuels and wind power, every year since 1996.

Ethanol and biodiesel, the two most widely used biofuels, receive significant government support under federal law in the form of mandated fuel use, tax incentives, loan and grant programs, and certain regulatory requirements.

Ethanol plays a key role in policy discussions about energy, agriculture, taxes, and the environment. In the United States it is mostly made from corn; in other countries it is often made from cane sugar. Fuel ethanol is generally blended in gasoline to reduce emissions, increase octane, and extend gasoline stock.

U.S. policy to expand the production of biofuel for domestic energy use has significant implications for agriculture and resource use. While ongoing research and development investment may radically alter the way biofuel is produced in the future, for now, corn-based ethanol continues to account for most biofuel production. As corn ethanol production increases, so does the production of corn. The effect on agricultural commodity markets has been national, but commodity production adjustments, and resulting environmental consequences, vary across regions. Changes in the crop sector have also affected the cost of feed for livestock producers.

Complete Table of Contents at www.TCNEthanol.com

All major U.S. agricultural program crops -- corn, barley, sorghum, oats, wheat, rice, and soybeans -- have exhibited extreme price volatility since mid-2007, while rising to record or near-record levels in early 2008. Several international organisations have announced that the sharply rising commodity prices are likely to have dire consequences for the world's vulnerable populations, particularly in import-dependent, less developed nations. In the United States, high commodity prices have pushed farm income to successive annual records and have sharply lowered government farm program costs, but they have also stoked the flames of food price inflation and have raised costs for livestock producers and food processors. In addition, high, unexpectedly volatile prices have increased the risk and costs associated with grain merchandising. In particular, they have dramatically increased the cost of routine hedging activities (i.e., pricing commodities for purchase, delivery, or use at some future date) at commodity futures exchanges and, as a result, have diminished "forward contracting" opportunities for grain and oilseed producers who are eager to take advantage of record high market prices. For some crops (particularly for wheat and rice), the price increases are likely to be relatively short-term in nature and are due to weather-related crop shortfalls in major producer and consumer countries, a weak U.S. dollar that has helped spark large increases in U.S. exports, a bidding war among major U.S. crops for land in the months leading up to spring planting in 2008, and the often perverse price effects resulting from international policy responses by several major exporting and importing nations to protect their domestic markets. Assuming a return to normal weather, these factors will likely self-correct within two growing seasons as global supplies are replenished and prices moderate. For coarse grains (corn, sorghum, barley, oats, and rye), oilseeds, and oilseed products (e.g., vegetable oil and meal), the price increases have also been due to strong, sustained demand deriving from two sources: robust income growth in developing countries (e.g., China and India), which has contributed to increased demand for meat products and the feed grains needed to produce that meat; and growing agricultural feedstock demand to meet large increases in government biofuel-usage mandates or goals in the United States, the European Union, and other countries. Market analysts, including the United Nations' Food and Agricultural Organization (FAO), are predicting record global grain and oilseed production in 2008 in response to the high market prices. However, given the overall strength in demand growth, most market analysts predict that when commodity supplies eventually recover and prices moderate from current high levels, the new equilibrium prices will be significantly higher than has traditionally been observed during periods of market balance. This book examines the causes, consequences, and outlook for prices of the major U.S. program crops

This volume reproduces a Congressional Research Service report assessing the potential vulnerability of US domestic agricultural programs to challenges under current World Trade Organization agreements. The report summarizes recent developments concerning ongoing dispute settlement challenges against US farm programs, reviews WTO provisions that would be implicated in potential challenges, reviews US domestic agricultural support by program and commodity, discusses how these programs fit into the scheme of WTO liberalization commitments, and examines some broader issues related to WTO challenges of commodity subsidy programs. The report is also available online at no charge.