President Obama released his budget proposal for fiscal 2013 this week. The president’s proposals are rarely adopted and the chances are even more remote in this election year. But some of the changes in farm programs recommended by the president will be discussed as the new farm bill is developed.

The president’s budget calls for elimination of direct payments, an idea that has gained wide acceptance in Congress over the last several months. But the proposed cuts to crop insurance are controversial. The president’s plan would reduce the government subsidy by 2 percentage points on policies with a subsidy that exceeds 50 percent and would reduce insurance companies’ returns on investment from 14 percent to 12 percent.

The cap on the CRP would be lowered to 30 million acres. (The Senate does not plan to develop its own budget for fiscal 2013 this year.)

Here are a few highlights from USDA’s annual 10-year baseline forecast released this week: The assumptions behind them are discussed on page one. It’s a very lengthy document and we’ll have more details in next week’s FOCUS report.

But for now, here are a few things that jumped out:

  • Corn acreage hits 94 million acres in 2012, but then eases back to stabilize near 90 million through 2021.
  • China becomes the world’s largest corn buyer, importing 18 million metric tons by 2021/22.
  • U.S. wheat acreage falls to 51 million acres as our share of world markets shrinks.
  • Soybean exports continue to rise, but we lose market share to South America.
  • Net cash farm income falls $24 billion below 2011’s record level of $98 billion by 2014, then works back to $97 billion by 2021.

Many people in agriculture are getting worried about the future of estate taxes.

Currently there is a $5 million per person estate tax exemption with estates above that taxed at 35 percent. If Congress does not take action, the exemption falls to $1 million and the tax rate jumps to 55 percent at the beginning of 2013. President Obama’s budget calls for a $3.5 million per person exemption and a tax rate of 45 percent. With the recent gains in land values, the estate tax exemption could be a very important factor in the transfer of farms and ranches from generation to generation.

Congress reached an agreement that will extend the current payroll-tax cut through the end of the year, continue long term unemployment benefits and prevent step reductions in Medicare payments to doctors. The 2-month extension of those programs was set to expire at the end of February and Congress takes a week-long break next week.

Congress agreed to extend the payroll-tax cut without finding spending offsets, the problem that had plagued the negotiations since late last year.

The Senate Agriculture Committee held the first of four farm bill hearings this week, gathering information to be used in the development of the next 4-year bill to replace the 2008 farm act that expires this year. Both Senate Agriculture Committee Chairman Debbie Stabenow (D-MI) and House Agriculture Committee Chairman Frank Lucas (R-OK) have indicated that the cuts to the crop insurance program outlined in the president’s budget are unacceptable.

Most observers agree that it will be difficult for Congress to pass a new farm bill before the elections this fall. And yet, a group of 82 very diverse groups sent a letter to Congress this week opposing an extension of the current farm bill. The letter says the farm bill is one of the most important pieces of legislation being considered this year and shouldn’t be delayed.

Congress could save $2.5 billion per year by turning the crop insurance programs over to USDA’s Farm Service Agency according to the National Association of FSA County Office Employees (NASCOE). But the insurance industry counters that the program is far more efficient and farmers have gotten better service since crop insurance was privatized in the 1980s.

With the likely phase-out of some of the current farm programs the transfer of the crop insurance program would help justify county FSA offices in the future. Congress probably won’t go along with the proposed change since crop insurance is expected to be the critical component of the next farm bill.