By Charles Abbott
WASHINGTON (Reuters) - Federally subsidized crop insurance will be a big target for lawmakers looking to cut the budget deficit in the lame-duck session of Congress opening next week, agricultural policy experts agreed the morning after a status-quo general election.
But lawmakers will probably be unable to break their deadlock over enacting a five-year, $500 billion farm bill covering a wide range of agricultural policy from food stamps to crop subsidies and soil conservation.
The worst drought to hit the Midwest farm belt in half a century should double the cost of crop insurance this year, and the nagging drought threatens 2013 crops as well.
Another key question for farm policy watchers after the re-election of President Barack Obama is whether Agriculture Secretary Tom Vilsack will serve a second term. Since the 1960s, only one USDA secretary has served two terms.
Ethanol likely benefited from Obama's victory, said analyst Mark McMinimy of Guggenheim Securities, noting that Obama and Vilsack are biofuels backers.
The Environmental Protection Agency may decide this month whether to relax the requirement to use ethanol in gasoline. Livestock producers say they are being ruined by high grain prices as more U.S. crops are diverted to fuel.
With Democrats still in narrow control of the Senate and Republicans keeping their majority in the House, analysts said a short-term extension of the 2008 farm law, probably into spring, was the likely outcome.
ODDS AGAINST FIVE-YEAR FARM BILL
"Odds are against a five-year farm bill in the lame duck (session) unless it's part of a budget agreement," and a budget deal is also unlikely, said Pat Westhoff of the think tank Food and Agricultural Policy Research, based at the University of Missouri.
Crop insurance already is the biggest part of the farm safety net, costing the government around $7 billion a year. The cost was expected to jump to $15 billion or more this year because the government will shoulder most of the underwriting losses for the 16 insurance companies in the field.
The full cost of the drought indemnities will be revealed during Congress' post-election session, which could direct more attention to crop insurance. So far, farmers have collected $3.6 billion in indemnities that ultimately could hit $25 billion.
Senators voted overwhelmingly in June to reduce the federal insurance subsidy for the wealthiest farmers. This could save $1.1 billion over a decade. The House of Representatives has not yet decided on this issue.
Costs could be cut further through an across-the-board reduction in the premium subsidy - currently the government pays 62 cents of each $1 in premiums - or by requiring insurers to accept a larger share of losses.
WHY ATTACK CROP INSURANCE? ASK FARM GROUPS
The major U.S. farm groups made a strong crop insurance program their top priority for the bill, even if it meant cutting other agricultural supports.
"Why start attacking the one tool we've been guiding people toward for 25 years?" asked Dale Moore, a lobbyist for the 6 million-member American Farm Bureau Federation.
The House splintered over how deeply to cut crop subsidies, many of which go to well-off farmers, and food stamps that are a lifeline for millions of low-income Americans.
House Republican leaders refused to call a vote on the bill during the summer, saying there was not a majority for it. Majority Leader Eric Cantor says he will bring the issue to the floor during the lame duck session.
The House Agriculture Committee's farm bill would slash $16 billion from the food stamp budget over 10 years, the largest cuts in a generation and four times larger than those proposed by the Senate.
Barry Flinchbaugh, Kansas State University agricultural economist, said he does not expect a new farm bill until April. The final version probably will look like the Senate bill, Flinchbaugh told a bankers' meeting in Milwaukee this week.
It would end traditional crop subsidies, mainstays of U.S. farm law for eight decades, and instead compensate farmers when revenue from a crop was 11 to 21 percent below normal. Crop insurance would cover deeper losses. The leading House plan would also boost crop support prices by up to 40 percent.
VILSACK TO STAND DOWN OR STAY?
Farmers, in general, are not Obama fans. The president's share of the rural vote dropped to 41 percent on Tuesday from 46 percent in the 2008 election, according to the Center for Rural Strategies.
But Vilsack, Obama's agriculture secretary and a former Iowa governor, has been a mostly popular USDA chief with a strong focus on overseeing programs as diverse as nutrition, farm exports and the national forest system.
Vilsack "is widely expected to continue" at USDA, said Guggenheim analyst McMinimy. Some USDA insiders expect Vilsack will stay for another year or two, a farm lobbyist said.
Potential successors could include former Senate Agriculture Committee chair Blanche Lincoln and Deputy Secretary Kathleen Merrigan, say farm activists.
Michigan Senator Debbie Stabenow, elected to her third term on Tuesday, was expected to return as chair of the Senate Agriculture Committee. Oklahoma Republican Frank Lucas, elected to his 11th term, will likely be back as House Agriculture Committee chairman. Each was the lead author of the farm bills passed by their committees this year.
(Reporting By Charles Abbott; Editing by David Gregorio)