Subsidies to big farms may be reduced,
a move favored in the Senate, but one that House leaders have shunned.
Milk price supports will be shaved. They need reauthorization
for payments after Sept. 2005. They'll be extended, but at a lower price.
Conservation will see more funding cuts as committees decide
between trimming land-idling programs or incentives for active cropland.
A major ag sector conflict looms: Farm subsidies vs. investment
in research and development, marketing, conservation and other efforts
tied to future success of farms and agribusiness. Livestock advocates
and others who don't grow major field crops will press for more funds.
One result: More money for ag research and for protecting health
of plants and animals. Animal and Plant Health Inspection Service funding
rose 86% in the past four years, and it'll go up more in the years ahead.
Aside from funding, other actions Congress will take this year:
Approval of a negotiated Central American Free Trade Agreement.
It'll include the Dominican Republic, despite a recent bargaining hitch.
It's the largest Central American party to the deal and tops for ag sales
to that region...about $450 million annually. CAFTA will make U.S. sales
of grain, oilseeds, cotton and other major crops duty-free immediately.
Advancing a biofuels standard that mandates use of ethanol
and biodiesel fuel. It's likely to be included in new energy legislation
or a renewal of the Clean Air Act. Look for advocates of the standard
to raise their usage target: Their benchmark of 5 billion gallons a year
will be reached before 2010 even without their proposed industry mandate.
Expect Congress to start retooling the Endangered Species Act.
A bill advanced in the House last year would focus on improving habitat
more than on saving species. It would exempt farmers who enhance habitat.
Also, a more-debtor-friendly farm bankruptcy law may succeed
as Congress revisits and completes its broad bankruptcy reform effort.
Finally, panels will wade into preliminaries of a 2007 farm bill.
 Resumed imports of Canadian cattle will have a modest impact.
Fewer than 1 million head will arrive this year, or a bit below
what was normal before entries were stopped in 2003 because of mad cow.
Canada will sell about 200,000 more calves than usual to U.S. feedlots
but 250,000 fewer fed cattle because of expansions at Canadian plants.
The U.S. still keeps Canadian dairy heifers from U.S. dairy farms
because USDA's rules continue to block entry of cows over 30 months old.
The U.S. cattle herd is on the rebound. USDA’s Jan. 28 report
of the Jan. 1 annual inventory will bring proof. Earlier reductions
in heifers going to feedlots and fewer sales of mature cows for slaughter
signal more bred cows and, hence, larger calf crops in the years ahead.
USDA will report 100,000 more retained heifers than a year ago,
the first increase since the mid-1990s. And mature cows to slaughter
will drop by about 50,000 for 2004. So cows, including retained heifers,
will total 33.3 million, which is up more than 1% over January 2004.
The upswing results from improved range conditions and increased forage,
which cut feeding costs and make rebuilding herds more profitable.
What's ahead for 2005? A calf crop of 38.3 million, up over 1%,
and the first annual increase in newborns since 1995. Also this month,
USDA will report the first annual rise in the total herd in nine years.
The resilient hog market will continue its strong run for months,
even though prices faded somewhat in December's reduced slaughter pace.
U.S. packers have been killing more than 2 million hogs weekly,
netting over 200 pounds of pork per animal. It's all used up by Americans
and foreign buyers. Americans will set a record in 2005 in per capita use
of meat. The robust market compares with 1998, when over 2 million hogs
were sold weekly and the resulting surplus drove prices down to $8/cwt.
But consumer and export demand will keep prices near $65-$70/cwt.
for carcasses. Prices will stay there for many months, until enough hogs
from the U.S. and Canada are ready to slaughter and sold to meat packers.
The 14-year erosion of the U.S. sheep breeding flock is ending.
The overall U.S. flock will be down when USDA reports its Jan. 1 counts
on Jan. 28. Since 2003, slaughter lamb prices have remained enticing,
limiting ranchers' retention of breeding stock.
So the flock's decline will continue this year.
But the inventory will also show breeding ewes,
with retained lambs, near the year-ago count.
Factors encouraging retention of breeding ewes:
Pasture and range broadly recovered in 2004.
High prices hold promise for future lamb crops.
And USDA is paying ranchers to retain ewe lambs.
Applications for ewe retention payments are due
by Jan. 13. Incentive payments are $18 per ewe
retained in the year ending July 31, 2004.
To apply, contact a Farm Service Agency office.
 Dairy farmers can expect robust demand and strong prices in 2005.
The all-milk price will fade from the $16/cwt. record in 2004.
But milk production will grow at the same pace as demand, or about 2%
for the year, which means strong prices aren't generating surpluses.
The rising demand includes cheese exports enhanced by the weak dollar.
Changes are coming in the management of the national.
Revised regs update Forest Service implementation of a law
that requires management plans for 155 and 20 grasslands.
More decisionmaking will be left up to Forest Service managers.
The rules give them more sway over the handling of and range,
reducing the requirement for seeking public input. Conservationists
are livid about that. But major projects or changes will still require
that environmental studies be completed and public comments invited.
Ranchers can expect somewhat better accommodations for grazing
of livestock in many. The new regulations will be less rigid
than before about how and rangeland are used for grazing.
Forest areas will see more attention to preventing wildfires,
including preemptive burns and thinning trees near settled areas.
Look for preservation of imperiled species to be redirected
from individual plants and animals toward overall habitat health.
Most state wildlife agencies hope this shift will enhance wildlife.
Managers are sure to be closely watched by environmentalists
and others. The new rules subject forest plans to independent audits.
And the new regulations themselves will be reassessed in a few years.
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 Edible-bean output will rebound in 2005 in the U.S. and Canada.
Weather problems cut North American and world production in 2004.
The U.S. crop hit a 21-year low, and Canada's was down 38% from 2003.
Lured by high prices, farmers will increase acreage this year,
seeding up to 100,000 more acres in the U.S. and 25,000 more in Canada.
Farmgate prices around $32/cwt. for pinto beans in the Upper Midwest
compare with about $14 a year ago and a 10-year average price near $18.
Farm prices for most beans are $18-$32/cwt. Markets hit a lull in Dec.,
but tight supplies suggest strong prices into next summer for most beans.
The early outlook on the 2005 crop is good, depending on weather.
Here’s why: Last year's short harvests in the Western Hemisphere
and Asia mean world carryover will drop to 4% of annual use by July 31.
So expected increases in U.S. output should entice buyers from abroad.
Asian rust affects many bean species, though most edible beans
are rust tolerant. Many dry bean growers may already know the resistance
or tolerance of their own beans. But, at current prices, many will invest
in fungicides to protect their bean crops, knowing the cost will pay off.
Note that fungicides will be required for insurance coverage.
USDA, which supervises crop insurance, says rust damage is covered.
But farmers must be able to show they used approved fungicide as needed.
Uncertainty in North and South America will hold soybean prices
at over $5 a bushel for months, until the 2005 U.S. crop can be forecast.
Prices will dip if USDA again ups its estimate of the record 2004 crop.
The U.S., Brazil and Argentina may boost harvests by 1.3 billion bushels
in this marketing year, leaving world stocks up 60% by summer. But...
Risk abounds for South America's crop: Rust is spreading rapidly
and may seriously hurt that harvest. So the surpluses there will fall.
Meanwhile, U.S. growers are restraining sales of their 2004 crop,
expecting rust to limit U.S. planting and yields in 2005, lifting prices.
 Finding a substitute for methyl bromide remains a big challenge.
So EPA will let farmers keep spreading the fumigant for a time
on insects, weeds and pathogens, despite a goal to end its use this year
under the Montreal Protocol. The pact’s goal is to purge substances
such as methyl bromide that deplete the earth’s critical ozone layer.
But despite $140 million for research, scientists have found nothing
that matches its effectiveness, low cost and safety for food products.
Agribusinesses still receive limited "critical use" exemptions
to continue using methyl bromide in fields, orchards and flour mills.
For 2005, U.S. agribusinesses can use 35% of the chemical’s 1991 usage.
EPA is reducing the allowance, but 35% is more than actual usage in 2003.
Advanced nations get similar decreasing allowances to use the chemical.
Since developing countries have until 2015 to phase out methyl bromide,
the receding exemptions for advanced nations lead the way to termination.
 The truck driver shortage will hit agribusinesses hard this year.
In shortest supply: Drivers who can haul hazardous loads...
fuel, fertilizer and chemicals...on both long- and short-haul routes.
A new antiterrorism law prohibits drivers who are not U.S. citizens
or permanent residents from getting permits to haul hazardous materials.
Seasonal drivers will also be difficult to find. Produce farmers
in coastal states and in the Southeast will be hardest put for drivers.
Agribusinesses can get grants for driver training. For help,
go to www.afop.org/members/directory.cfm and click on your state.
 Canadian farmers may soon own over half of Canada's hopper cars.
Parliament is considering a low-price sale of 13,000 grain cars
to a coalition of farm groups in western provinces. Canada uses railroads
to ship about 800 million bushels of grain a year to ports and millers.
Sale approval would quiet U.S. farmers’ gripes about rail rates
in Canada because the government would no longer be providing railcars.
Canada also used to subsidize the grain-shipping rates in years past.
 Note federal tax changes that will apply to your 2005 income:
You’ll get to deduct 3% of net income from farm production,
whether you're self-employed or a business entity. But this write-off
will be limited to 50% of W-2 wages and the total of your taxable income.
Small businesses can expense $105,000 for equipment, up $3000,
but that allowance is reduced when their added assets exceed $420,000.
First-year depreciation on light trucks and vans falls to $3260,
down from $10,910 for 2004. For cars, the write-off falls to $2960.
On Health Savings Accounts, the maximum deductible rises by $100,
to $5250, and for individual taxpayers, by $50, to a maximum of $2650.
For retirement, payin limits on IRAs and Roths go up by $1000,
to $4000. SIMPLEs, to $10,000, or $12,000 for those born before 1956.
IRS now pays interest on deposits for disputed back taxes.
But you must apply for interest for deposits made before Oct. 23, 2004.
For editorial information call us at 202-887-6462
©2004 The Kiplinger Washington Editors
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