February 23, 2020

Debt Downgrade Issues; Farm Bill; Ag Economy; Federal Rules; and Food Safety

Debt Downgrade and the Economy: General Background- Federal Reserve Board Statement

Diane Swonk explained yesterday at the Economic Minds Blog that, “In an unprecedented move, the Federal Open Market Committee (FOMC) signaled that it might hold its zero-interest-rate policy until mid-2013, the longest period it has ever officially committed to any policy. The FOMC also opened the door to changes in both the composition and the size of its balance sheet, which will now likely include a third expansion in the form of large-scale asset purchases (such as Treasury bonds), also known as QE-III. This comes on the heels of the G-7 (Group of Seven most industrialized countries) pledge to do whatever is necessary, after Standard and Poor’s downgraded the credit quality of U.S. Treasuries from AAA to AA+ over the weekend.

“The announcement effect of the Federal Reserve’s bold move today was somewhat blunted, however, by the large number of dissenters to the decision. The Presidents of the Dallas, Minneapolis and Philadelphia Federal Reserve Banks all took particular issue with the extension to the zero-interest-rate policy until mid-2013.”

Jennifer Epstein reported yesterday at Politico that, “With rates staying low for close to another two years, by mid-2013 they will have spent four-and-a-half years hovering at or just above zero percent.

“‘What you have here is maybe an implicit acknowledgment by the Federal Reserve that we have a lost decade,’ Keith Leggett, vice president and senior economist at the American Bankers Association, told POLITICO after the announcement. ‘It may take us several years before we see any meaningful growth in the economy.’”

Sudeep Reddy and Jonathan Cheng reported in today’s Wall Street Journal that, “The Federal Reserve sent investors lurching from worry to hope as it warned that the economy would remain weak for some time but said it was prepared to take further steps to shore it up.”

Binyamin Appelbaum reported in today’s New York Times that, “It is now conventional wisdom among forecasters that the economy will plod along through the end of President Obama’s first term in office. Millions of Americans will not find work. Wages will not rise substantially.

“By its action, the Fed is declaring that it, too, sees little prospect of rapid growth and little risk of inflation. Its hope is that the showman’s gesture will spur investment and risk-taking by convincing markets that the cost of borrowing will not rise for at least two years.”

More specifically with respect to agriculture, Mikkel Pates reported in an AgWeek article that was posted earlier this week at the Grand Forks Herald Online that, “Ag lenders say it’s too soon to say what are the implications from a downgrade in federal credit rating, but uncertainty won’t be helpful for a sector that is heavily dependent on capital and credit.”

And American Farm Bureau Chief Economist Bob Young was a guest on yesterday’s AgriTalk radio program with Mike Adams where he provided a preliminary outline (audio about four and a half minutes) of potential impacts of the downgrade on the agricultural economy.


Debt Downgrade: Political Implications, Super Committee

Political observers initially speculated that the debt downgrade could provide an impetus for the soon to be appointed 12 member Congressional super committee to come to a consensus on a way forward for additional debt reduction proposals, as part of the second phase of the debt reduction agreement hammered out last week.

However, Steven T. Dennis reported yesterday at Roll Call Online that, “The market turmoil following last week’s debt deal — including Monday’s 600-point plunge in the Dow Jones Industrial Average — appears to have merely amped up partisan attacks.

“Standard & Poor’s blamed, in large part, partisan gridlock for its historic downgrade of U.S. credit rating to AA+ from AAA Friday evening. But rather than causing the parties to look for ways to bridge their differences, their political arms went on the attack.”

The Roll Call article added that, “Former Senate Budget Chairman Pete Domenici (R-N.M.) and former White House Office of Management and Budget Director Alice Rivlin, co-chairmen of the Bipartisan Policy Center’s Debt Reduction Task Force, sent a letter to leaders of both parties urging them to deal with both revenue and entitlements, as well as pass a large upfront payroll tax cut to spur the economy through the new joint committee.”

Laura Meckler and Naftali Bendavid reported in today’s Wall Street Journal that, “Senate Majority Leader Harry Reid named three Democratic senators who are considered neither ideological purists nor eager compromisers to a ‘super committee’ charged with finding at least $1.2 trillion in deficit reduction over the next decade.

“The move on Tuesday came as lobbying has intensified about who will be chosen for the remaining spots on the Joint Select Committee on Deficit Reductio—appointments that will play a large role in the eventual shape of any deal. Defense advocates are pushing for a defense hawk. Conservatives want someone from the tea party. Leaders also face pressure to name fresh faces.

“Mr. Reid (D., Nev.) named Sens. Patty Murray of Washington, Max Baucus of Montana and John Kerry of Massachusetts. Ms. Murray will be co-chairman of the committee. House Speaker John Boehner (R., Ohio) will name the other co-chairman.”

Some rural politicians and agricultural groups had previously noted that either Senator Kent Conrad (D-ND) or Senator Baucus would be good choices for the super committee due to their understanding of agriculture and the potential implications that budget decisions could have on farm policy.

The Journal article noted that, “Mr. Baucus is chairman of the Finance Committee, which handles entitlement programs and tax policy, both of which will be under the committee’s microscope. He served on last year’s White House deficit-reduction commission and ultimately voted against that panel’s recommendations, arguing that rural areas would be hurt by its proposals.”

Manu Raju and John Bresnahan reported yesterday at Politico that, “By choosing Baucus, Reid may unnerve some liberals who have been skeptical of the Montana Democrat’s deal-making with Republicans over the years. But Baucus also has held the party line on raising revenues and attacking GOP budget plans to overhaul Medicare, a role he played in the budget talks with Vice President Joe Biden.”

The Politico article noted that, “All four party leaders face internal politics as they try to choose members who will both represent their caucus’ interests and try to show a level of seriousness amid a fiscal crisis that led Standard & Poor’s to downgrade the U.S. credit rating for the first time in history. And the appointees must be able to withstand withering criticism from their bases if they cut a compromise deal – or public outrage if they fail to reach an accord at a time of historic deficits.”

Yesterday’s article added that, “[House Democrat Leader Nancy Pelosi] has not yet indicated who she will pick, but Rep. Chris Van Hollen (D-Md.), the top Democrat on the House Budget Committee, is a possible pick, according to Democratic sources. Other potential selections include Reps. James Clyburn (D-S.C.), the Assistant Democratic Leader, and Xavier Becerra (D-Calif.), the top Latino in the Democratic Caucus.”


Farm Bill Issues

DTN Ag Policy Editor Chris Clayton reported yesterday that, “Ethanol tax support is likely gone, while direct payments are on the chopping block as the process to cut spending may accelerate decisions on the next farm bill.

“Those are some of the thoughts that veteran Republicans on the Senate Agriculture Committee see coming down the line as decisions are made to cut another $1.2 trillion in future spending before the end of the year.

“Sen. Mike Johanns, R-Neb., told farmers in Lincoln on Monday that the outlook and timing for the next farm bill won’t become clear until after a 12-member congressional committee meets this fall to recommend the next round of cuts. But agriculture will be a place to cut, he said.”

The DTN article noted that, “Overall, though, the strong prices in several commodities are already leading to traditional commodity programs withering away. Johanns said he can’t imagine a scenario that would lead to a loan-deficiency payment or counter-cyclical payment for most crops. Further, direct payments will struggle to remain in the fold as well.

“‘In the halls of the House and the Senate, it will be very hard to justify a direct payment under these circumstances with very strong prices,’ Johanns said.”

Mr Clayton added that, “Johanns noted that crop insurance is the major safety net for most farmers, particularly in the Midwest where enrollment rates are above 90% statewide. Those programs also already have taken a $6 billion cut in the rate of growth over the next decade.”

A news release toady from the California Farm Bureau Federation (CFBF) stated in part that, “The [super] committee, to be named in mid-August, is expected to scrutinize farm programs, as well as other areas of the federal budget, including defense and Medicaid spending.

“‘California agriculture anticipates a cutback in direct payments. We’re concerned about maintaining a safety net, but there’s acknowledgment on the part of the California farm community that direct payments are in serious jeopardy—if not in the debt reduction effort, then in the next farm bill,’ said Jack King, CFBF National Affairs manager. ‘Whether it is this round or the next round, Congress is going to look at ag program spending with a very critical eye.’”

Meanwhile, a news update yesterday from USDA indicated that, “On August 15-17, President Obama will travel to the Midwest on a three-day economic bus tour, making stops in southern Minnesota, northeastern Iowa and western Illinois.  The President will discuss ways to grow the economy, strengthen the middle class and accelerate hiring in communities and towns across the nation and hear directly from Americans, including local families and small business owners.  The President knows we must do everything we can to promote economic growth, restore confidence in our nation’s future and restore the sense of optimism for future generations.”


Agricultural Economy

Bloomberg writers Justin Doom and Debarati Roy reported earlier this week that, “The worst Texas drought in more than a century has left cotton-crop conditions that rival the Dust Bowl of the early 1930s, forcing farmers to abandon more fields than ever before.

“Most growers will at least break even this year from insurance claims, with the reimbursement rate on policies higher than the price of New York cotton futures, according to a Bloomberg News survey of seven analysts, brokers and farmers.”

The article stated that, “Ron Craft, a fourth-generation cotton ginner in Plains, Texas, said he expects his business to plunge by at least 75 percent. Last year, his gin processed crops that yielded about 85,000 bales of cotton. Less output means he and other ginners won’t be able to hire as many seasonal workers for warehouse and trucking jobs, Craft said in a telephone interview.

“‘I’ve got those people that come back every year depending on me for a job, and I may not be able to provide that for them because of the lack of cotton to process,’ Craft said.

As a ginner, Craft cannot purchase crop insurance, and claims this year will ‘definitely, no doubt, be the most I’ve ever seen,’ he said. ‘I’ve got growers right now who, realistically, if they could terminate their crop and not have to put any more inputs into it and take that insurance claim, they’d be a lot better off.’”

A news release yesterday from Sen. Kent Conrad (D-ND) stated that, “Senators Kent Conrad and John Hoeven were joined today by Michael Scuse, the U.S. Department of Agriculture’s Acting Under Secretary for Farm and Foreign Agricultural Services, to inspect farmland damaged by this spring’s heavy rainfall and flood conditions. The officials visited the farm of Jon and Eleanor Erickson in Minot and, after inspecting weather related crop damage, spoke with area producers about the numerous disaster assistance programs available to help them recover.”

The release added that, “The unprecedented flooding that wreaked havoc on much of North Dakota left millions of acres unplanted. According to a preliminary analysis performed by North Dakota State University’s Department of Agribusiness and Applied Economics, the direct financial impact to North Dakota’s farmers of prevented planted acres in 2011 is estimated at $1.1 billion. Many producers will also suffer weather-related losses on land that was planted.  Estimates show North Dakota will receive approximately $1 billion in combined prevented planting and crop insurance payments for this crop year plus $100 million in disaster assistance for livestock and crop losses.”

And a Dow Jones news article from yesterday stated that, “American consumers can expect bigger grocery bills in 2012, even as commodity prices are forecast to fall.

“The U.S. is expected to churn out more staples like corn, wheat and soy, which would drive commodity prices lower in 2012. However, it takes several months for a commodity such as corn to make its way down the production line and into a box of cereal, so consumers next year will be buying food made from raw materials bought this year, when crop prices reached multiyear highs.

Weather problems including frosts, floods and droughts have driven commodity prices this year.”


Federal Rules

Marshall Eckblad reported yesterday at The Wall Street Journal Online that, “The U.S. Department of Agriculture proposed a new, mandatory system Tuesday for tracking cattle, poultry and other farm animals to pinpoint the origin of diseases that can spread through herds and halt exports.

“Ranchers and farmers under the rules would be required to affix a unique identification number to animals transferred between states or tribal areas. The tracking system would allow federal officials to more quickly find the source of an outbreak and isolate the diseased animals, reducing the economic and public-health impacts, the USDA said.

“U.S. Agriculture Secretary Tom Vilsack in a conference call said the tracking system would help reassure foreign meat buyers, some of whom have been critical of the U.S. system for disease control. The lack of a more rigorous system became an issue in December 2003 when the first U.S. case of mad-cow disease was discovered.”

The Journal article pointed out that, “The National Cattlemen’s Beef Association, which represents producers and packers, said it generally supports the development of a tracing program and would analyze the specific proposal before commenting about its contents.

The proposal would replace a seven-year-old voluntary program that has failed to entice broad participation from producers. Some beef ranchers and small farmers have spurned the program with a variety of complaints, from higher expenses to privacy. R-Calf USA, a group representing producers of calves, said the rules were too invasive.”

And Mathew L. Wald reported in today’s New York Times that, “Big tractor-trailer trucks will have to get 20 percent more miles per gallon by the 2018 model year under the first-ever fuel economy rules for heavy vehicles, announced Tuesday by President Obama.

“The rules mimic the ‘light duty’ fuel economy standards for cars and sport utility vehicles that have been in place since 1975. But they are more complex, tailored to cover vehicles including garbage trucks, which must get a 10 percent improvement, and pickups and vans too big to be covered by the existing rules, which must now make a 15 percent improvement.

The rules are allowed under a law signed by President George W. Bush in 2007, but it has taken until now to devise the program. And Mr. Obama, at a time when there is substantial opposition to new environmental rules, said in a statement that the vehicle owners wanted their trucks to be regulated.”


Food Safety

Bill Tomson reported in today’s Wall Street Journal that, “Federal officials said they turned up a dangerous form of salmonella at a Cargill Inc. turkey plant last year, and then four times this year at stores selling the Cargill turkey, but didn’t move for a recall until an outbreak killed one person and sickened 77 others.

“Cargill and the U.S. Department of Agriculture announced the recall of ground turkey from the Cargill plant in Springdale, Ark., on Aug. 3. The USDA said the third-largest meat recall in history affected 36 million pounds of ground turkey.

Food-safety specialists said the delay reflected a gap in federal rules that don’t treat salmonella as a poisonous contaminant, even if inspectors find antibiotic-resistant forms such as the Heidelberg strain implicated in the latest outbreak.”

Today’s article noted that, “‘We have constraints when it comes to salmonella,’ said Elisabeth Hagen, the USDA’s top food-safety official, in an interview. She said that unlike E. coli, salmonella isn’t officially considered a dangerous adulterant in meat unless that meat is directly tied to an illness or death.”

Keith Good

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