The detailed new farm bill proposal from the Bush Administration is getting more scrutiny as Ag Secretary Mike Johanns continues his travel to talk about the proposals. During the National Cattlemen's Beef Association Annual Convention this week in Nashville, Johanns highlighted provisions for renewable fuel research that could eventually ease the pressure driving corn prices higher.
"Just 6 years ago there were 54 ethanol plants in this country producing about 2 billion gallons of ethanol," he notes. "Fast forward to today and there are 110 ethanol plants producing 5 billion gallons. This has literally ballooned overnight."
Cattle producers are working on their policy document regarding the issues surrounding renewable fuels and their impact on traditional agriculture during this week's meeting.
Johanns told the group that $1.6 billion is proposed over the next 10 years for cellulosic ethanol production that would ease the burden on corn. "In addition, we have a provision for $2.1 billion in loans for construction of cellulosic plants for the future."
During a media briefing after his talk, Johanns discussed the fact that other sources for ethanol could also come online in the future, including sugar cane and even sugarbeets. "That would also relieve the pressure on corn price," he adds.
The 183 farm bill document contains a wide range of proposals and new ideas that Congress will have to digest as the debate begins. Johanns notes that the ideas came from farmers and ranchers from 52 different farm bill listening sessions around the country in 2005 and 2006. "These are your ideas," he notes.
Limiting 1031 exchanges
Among the issues that appeared repeatedly at those listening sessions was the challenge created by the 1031 exchange. This tax advantaged exchanges allows a land owner to sell farmland in one area and if the cash is invested in farmland again, there's not tax on the sale. The like-for-like exchange has been around since the 1920s, but in the past five years has become a boon to farmers near urban areas who sell their land at higher-than-average prices and then reinvest it in farmland elsewhere.
Those sales are pushing the local price of land up. But the administration farm bill proposal includes a provision that would make land purchased as part of a 1031 exchange ineligible for commodity payments. Conservation program access would still be available to that land.
"There's currently no time limit on that restriction," Johanns says. "We listened to farmers and this was a burr in their saddles. They say there's no way they can compete with those buyers to expand their operations locally."
The proposal, he notes, would not impact the 1031 tax advantaged sale, but could limit the exchanges. This provision of the new farm bill is getting increased scrutiny this week as more folks hear about the different provisions.
You can get a fact sheet on the new farm bill by visiting www.usda.gov/farmbill to learn more.