U.S. Secretary of Agriculture Mike Johanns lauded the Bush Administration for record farm income projections for 2005 during a keynote address at the Commodity Classic, the annual national meeting of corn and soybean farmers, held recently in Austin, Texas.

Johanns said U.S. farm income would top $78 billion in 2005 and farm equity would exceed $1 trillion.

He then defended the administration's proposed budget cuts, which, if enacted, would take a significant chunk out of that record income.

A recent report from USDA chief economist Keith Collins says record government payments helped push net cash farm income projections to $78.1 billion, slightly ahead of 2004. The government safety net kicks in to help farmers overcome projections for a $13 billion drop in the value of U.S. agricultural marketings for 2005.

Numbers from the Office of Budget and Planning Analysis indicate that government payments would account for $24 billion of the $78.1 billion income projection for 2005.

Collins presented his estimates at the Agricultural Outlook Forum 2005 at Arlington, Va., the day before Johanns addressed the corn and soybean growers.

During a press conference following his Commodity Classic address, Johanns responded to a Farm Press question regarding how the proposed cuts will affect cotton farmers. “Cotton farmers will understand that in order to have an economic chance, we have to do all we can to balance the federal budget,” he said.

He added that regardless of the crop - “cotton, corn, rice or soybeans - balancing the budget is an absolute necessity. Running a huge deficit can't be a good thing for agriculture. We can compete with anyone but we have to get our budget in place.”

Johanns also defended re-opening the Farm Security and Rural Investment Act of 2002 because: “In reality so many things have happened.” He pointed to the war on terrorism and the invasion of Iraq as significant factors that have changed the economic climate since the 2002 law was signed.

He said agriculture has not been singled out to take a harder hit than other agencies. “We will be as fair as possible.”

Speakers in a legislative update session disagreed with that assessment. Both Mark Halverson, minority staff director on the U.S. Senate Committee on Agriculture, Nutrition and Forestry, and Vernie Hubert, ag committee staff member for the majority party, said agriculture takes a disproportionate hit in the president's budget proposal.

Halverson said Sen. Tom Harkin (Iowa), ranking member of the Senate ag committee, said instead of being penalized ag should be recognized for staying within its budget the past two years.

“Sen. Harkin sees no need to re-work the farm bill,” Halverson said. “That re-opens the farm bill and it already has been re-opened to some extent with annual appropriations.”

Hubert said the farm bill actually spent $15 billion less than budgeted since it was enacted in 2002. “We should be recognized for that,” he said. Both pointed out that ag cuts, compared to other mandatory spending reduction proposals, is out of line.

“The ag budget represents less than 1 percent of all government mandatory spending,” Hubert said. “But (proposed mandatory budget cuts for agriculture) add up to an 8 percent reduction. Other mandatory spending cuts (from other agencies) average 5.6 percent.”

He said ag discretionary reductions hit 9.6 percent, compared to other discretionary cuts at .3 percent.”

“We're taking a disproportionate hit,” Halverson said. “And the biggest impact comes from user fees, such as APHIS (and other regulatory agencies) and in farm commodity programs.”

He said direct payments, counter cyclical payments and marketing loans all would be cut in the president's proposal.

Also, the new payment limit, 85 percent of program payment yield, would take a significant chunk out of farm income. He offered a hypothetical example, an Iowa corn and soybean farm, 250 base corn acres and 150 base soybean acres, all planted. The loan deficiency payment takes the biggest hit, he said, and, based on 2004 yields and prices, “only 54 percent of the corn in Iowa would be eligible.”

The hypothetical farm would lose $7,700 under the proposed cuts.

Other programs scheduled for significant reductions include key conservation titles such as wildlife programs and EQIP.

“This budget proposal is a big deal,” Hubert said, “even though it happens every year and it is not a done deal.”

He said the proposal goes to both houses of Congress and those bodies, including various committees, develop a “views and estimates letter,” which goes back to the budget committees to be drafted into a proposal.

“The dominant theme we've seen in both the House and Senate (ag committees) views and estimates letters has been, ‘don't open the farm bill.’ It was a very good bill and has helped agriculture make historic gains,” Hubert said.

Johanns said continued gains depend on improved trade.

“The key for agriculture,” he said, “lies in improved trade, especially through CAFTA. CAFTA is exactly what agriculture needs in the United States. The sugar industry has some concerns but the agreement will not affect the U.S. sugar industry significantly. For agriculture to succeed, we have to have open markets. That's what CAFTA does.”

Johanns said most of the potential CAFTA trading partners already have access to the U.S. market and 99 percent come in duty free while U.S. goods still face stiff tariffs going into those countries. CAFTA would either do away with tariffs or phase them out over time, he said.

But Halverson said re-opening the farm bill now, two years before the law is up for re-authorization, sends a signal to trading partners that could weaken U.S. agriculture's position in negotiations.

“Our competitors have screamed at our farm bill,” Hubert said, “but we have supported our farmers up to the limit of our obligations. This law allows us to do that. Why, two years before reauthorization, and with WTO talks looming, should we make changes? Agriculture, as always, has been responsible with spending.”

Halverson said the United States has run a positive trade balance in agriculture but the gap is narrowing to the point that the U.S. could soon import more food and fiber than it exports.

e-mail: rsmith@primediabusiness.com