Policy- Budget Issues: CBO Update, “Sequester” Analysis
Reuters writer Charles Abbott reported yesterday that, “U.S. farmers will plant huge amounts of corn and soybeans this year, producing a record corn crop and ending three years of razor-thin supplies barring weather problems, the U.S. Congressional Budget Office projected on Tuesday.
“The CBO projected a corn crop of 14.454 billion bushels [see page nine of “CBO’s February 2013 Baseline for Farm Programs”] , which would be the biggest ever, and a soybean crop of 3.306 billion bushels [see page 11 of the Farm Program Baseline], the third-largest on record.
“The projections assume a return to normal weather and higher yields despite the lingering effects of the 2012 drought – the worst in 56 years.”
The Reuters article noted that, “Growers, meanwhile, will collect a record $16 billion in crop insurance indemnities for 2012 losses, CBO estimated in documents that forecast spending by the Agriculture Department and the rest of the federal government.
“Crop insurers would lose $5 billion on their 2012 policies, the first money-losing year in a decade” [see page 22 of the Farm Program Baseline].
Yesterday’s article added that, “The federally subsidized crop insurance program has become the biggest strand in the farm safety net, estimated at $8.7 billion a year over the next decade. The government pays 62 cents of each $1 in premium, pays part of the overhead costs of insurers and bears part of the losses.”
Also with respect to variables associated with weather, yields, and prices, note that University of Illinois Agricultural Economist Gary Schnitkey indicated yesterday at the farmdoc daily blog (“Low Crop Revenue Most Likely Due to Lower Prices”) that, “Much of the Great Plains and western corn-belt still is in drought, leading to concerns about a drought in 2013. While a drought in 2013 is a possibility, a more likely scenario resulting in low crop revenue is declining prices combined with near normal yields. Herein, historical yield and price changes are used to illustrate potential revenue scenarios under drought yields, near normal yields, and above average yields. Then, situations in which low revenues occur from historical yield and price changes are identified.”
After a brief and detailed analysis, Dr. Schnitkey stated that, “Using history as a guide, low revenue will likely be caused by a large price declines. This year, large projected plantings of corn are projected. Large planting combined with normal or higher yields could result in large supplies of corn, resulting in large price declines.”
In addition, a six page macro-economic summary of the CBO update from yesterday from the Committee For a Responsible Federal Budget can be found here, and Damian Paletta reported in today’s Wall Street Journal that, “A slowly improving economy and recently enacted tax increases will help bring down the federal deficit for the next few years, the Congressional Budget Office said Tuesday, but it will take another $2 trillion in belt-tightening over the next decade to begin to move the federal debt closer to historic levels.”
“Farmers could see cuts in farm programs and less opportunity to enroll in some conservation programs if the budget cuts typically referred to as ‘sequestration’ go into effect.”
Mr. Clayton noted that, “USDA would have to cut nearly $2.47 billion over the last six months of the federal fiscal year if the across-the-board cuts go into effect.”
“USDA isn’t providing details on exactly how sequester cuts would be made. When asked about specific cuts on Tuesday, a USDA spokesman referred DTN to the White House Office of Management and Budget. The OMB media office did not respond to an inquiry,” yesterday’s article said.
The DTN update pointed out that, “But an OMB report issued last fall stated spending on mandatory farm programs would be cut 7.6%, or about $469 million, for the current fiscal year, or about $4.7 billion over 10 years. Given the lion’s share of commodity funds are flowing through the $5-billion-a-year direct-payment program, it’s likely that’s where the cuts would occur.
“Most agencies and programs across the federal government would take an 8.2% cut in the discretionary budget. But programs in the federal budget helping low-income people would be exempt. That would include the line items for school lunches and the Supplemental Nutrition Assistance Program, formerly known as food stamps.
“However, some programs for low-income people would face cuts. Women, Infants and Children, another supplemental food program, is classified as discretionary spending. WIC could face a $543 million cut, which nutrition advocates say would cut as many as 900,000 women and children from the program. The WIC cut is the single biggest line item in the USDA cuts.”
Mr. Clayton also noted that, “Crop insurance appears to be largely exempt from cuts under the sequester, though the Risk Management Agency would take a $10 million cut this year.”
Recall that a National Sustainable Agriculture Coalition Blog update pointed out earlier this month that, “Had the 2012 Farm Bill been allowed to pass and become law, and had the House and Senate split the difference between the savings generated by their respective bills, Congress would have already reduced the deficit by $29 billion over the next decade, or slightly more than quadruple the amount that will be saved from the farm bill if sequestration is allowed to trigger on March 1.
“No other congressional committees can make this claim.”
Also, Bloomberg writer Alan Bjerga reported yesterday that, “The U.S. will need to reduce the number of inspections at meatpacking plants unless Congress can avoid threatened across-the-board spending cuts set to take affect in March, Agriculture Secretary Tom Vilsack said.
“The cuts, totaling $1.2 trillion, are more serious than a normal spending reduction because of the tighter time frame involved in meeting targets for a fiscal year that would be almost half over, Vilsack said today after a speech in Washington. The U.S. Department of Agriculture is studying how it would handle reductions, which would affect nutrition programs as well as food safety and research, he said. Food stamps are exempted.”
Jonathan Strong reported yesterday at Roll Call Online that, “This week’s rhetoric over the budget — or lack thereof, yet — showcases a messaging war over the blame game between the two ends of Pennsylvania Avenue.
“First, Speaker John A. Boehner repeatedly tried to pin the automatic sequester cuts on President Barack Obama in a Monday floor speech. Now, Obama’s Democratic allies in the House are trying to pin rampant deficits on Congress.”
Mr. Strong noted that, “The House Rules Committee allowed [Rep. Mark Takano’s (D, Calif.)] amendment to be considered but not one submitted by Rep. Chris Van Hollen, ranking member on the Budget Committee and a top strategist for Democrats on spending battles.
“The Maryland Democrat’s amendment would temporarily replace the sequester cuts with a combination of spending cuts and tax increases.
“Specifically, the amendment eliminates certain ‘direct payment’ farm subsidies, increases taxes on the oil and gas sector, and implements the ‘Buffett rule’ proposal to ensure high-income individuals pay a minimum tax rate.”
In other Farm Bill related developments, House Agriculture Committee Member Jim McGovern (D., Mass.) spoke yesterday on the House floor about hunger issues in the U.S. (video replay here) and noted in part that, “Last year, over 47 million families relied on SNAP to feed their families. SNAP is literally a lifeline for these 47 million people who struggle to make ends meet. I don’t deny that this is a big number, but it’s a big number because it’s a big problem.”
Peter Urban reported yesterday at Arkansas News Online that, “A shift in leadership within the Senate Agriculture Committee could benefit Arkansas rice growers when lawmakers get down to crafting farm policy this year, according to Sen. John Boozman, R-Ark.
“Boozman, who spoke Tuesday to members of the USA Rice Federation, said he expects the committee will report out a five-year farm bill that provides an adequate financial safety net to all farmers.”
The article added that, “‘I think with Sen. [Thad] Cochran’s [R., Miss.] leadership we will have a much more balanced bill coming out of the Senate,’ Boozman said.”
And a National Farmers Union (NFU) news release yesterday indicated that, “In an effort to ensure that passage of a farm bill does not get pushed back once again as a result of the continued focus on budget, sequestration and debt crisis on Capitol Hill, [NFU] President Roger Johnson and NFU staff have begun meeting with members of the 113th Congress on the Senate and House of Representatives Agriculture Committees to focus on the vital importance of the completion of a comprehensive, five-year farm bill as soon as possible.”
Brad Lubben, Policy Specialist, University of Nebraska-Lincoln, noted earlier this week at the AgChallenge2050 Blog (Farm Foundation) that, “The continuing battle over dairy policy seems to be at the crux of the [Farm Bill] issue, with a proposed margin safety net program that looks more like risk management, but a supply control element included that recalls the previous income support era. The inability to resolve this issue and the lack of significant spending legislation to which farm bill cuts could be attached, seems to be a more likely cause of the farm bill delay for the moment than any question of declining relevance.”
Agricultural Economy- Trade
Alicia Wallace reported this week at The Denver Post Online that, “The nationwide drought coupled with the fires in Colorado, Texas and Oklahoma over the past few years is hampering the nation’s hay industry, putting increased pressure financially on area ranchers, businesses and nonprofit groups that rely on finding high-quality feed for their horses and steers…[T]he tightness in the industry also has forced some ranchers to give up their livestock and resulted in the creation of a black market for hay.”
An update yesterday at the USDA- Economic Research Service (ERS) Chart Gallery indicated that, “Stocks of all U.S. hay stored on farms totaled 76.5 million tons on December 1, 2012, down sharply from a year ago because of the effects of the 2012 U.S. drought. When measured relative to the demand for hay, by converting livestock inventories into roughage consuming animal units (RCAU), 2012 hay stocks were the lowest since 1984.”
In a broader look at issues associated with the U.S. agricultural economy, James Williamson, Ron Durst, and Tracey Farrigan penned a recent USDA-ERS report titled, “The Potential Impact of Tax Reform on Farm Businesses and Rural Households.”
The Abstract of the report stated that, “Several proposals calling for fundamental reform of the Federal income tax system have been put forth, including a report by the co-chairs of the National Commission on Fiscal Responsibility. The primary elements of reform—eliminating tax preferences, restructuring capital gains and dividend tax rates, lowering rates on individual income, and reducing the number of tax brackets—could have a significant impact on the after-tax income and well-being of both farm businesses and rural households. This report uses published and special tabulation data obtained from the Internal Revenue Service, farm- level data from USDA’s Agricultural Resource Management Survey, and data from the American Housing Survey to examine the current tax situation for farm households and to evaluate the importance of various Federal income tax policies. For farm households, the effect of reform will primarily depend upon changes to existing treatment of investment and business income, including several important business deductions. In contrast, changes to existing individual tax credits, especially refundable tax credits, will likely be of greater significance to nonfarm rural households.”
In news regarding infrastructure and transportation, Pat Curtis reported yesterday at RadioIowa Online that, “Iowa’s governor and lieutenant governor will be among the participants in a panel discussion in Davenport today about Mississippi River trade infrastructure. The river is critical to agriculture interests as tons of corn and soybeans and other products are shipped around the world.
“Gary Meden is Deputy Commander for Programs and Project Management with the U.S. Army Corps of Engineers, Rock Island District. He says his agency receives roughly $50 million a year in federal funding and it’s not nearly enough to maintain the current state of locks and dams on the Upper Mississippi.”
Also, a report this week at the St. Louis Post-Dispatch Online indicated that, “Both of the U.S. senators from Missouri are seeking a meeting with stakeholders in an effort to close a 1,500-foot gap in a Mississippi River levee in southeast Missouri.
“Republican Roy Blunt and Democrat Claire McCaskill on Monday expressed dismay at the inability to fix a gap in the St. Johns Bayou and New Madrid Floodway levee. Construction to fix the gap was halted in 2007 due to technical problems with the project’s Environmental Impact Statement.”
In trade news, Vicki Needham reported yesterday at The Hill’s On the Money Blog that, “Vice President Biden made one final push for a trade deal between the United States and the European Union before heading home on Tuesday.
“Biden joined British Prime Minister David Cameron and Deputy Prime Minister Nick Clegg in calling for a trans-Atlantic free-trade agreement ahead of their meetings in London, the last leg of Biden’s four-day European trip.”
And an update yesterday from the U.S. Trade Representative’s Office (USTR) noted that, “Yesterday, USTR’s Chief Agricultural Negotiator Islam Siddiqui delivered remarks to members of the Marketing and International Trade Committee during the National Association of State Departments of Agriculture (NASDA) winter policy conference in Reston, Virginia. Ambassador Siddiqui highlighted USTR efforts to open markets, level the playing field, and keep America competitive.”
Sara Murray reported in today’s Wall Street Journal that, “House Republicans took a skeptical view Tuesday of opening a path to citizenship to people now in the country illegally, pointing to a fundamental disagreement with a bipartisan effort in the Senate to change immigration laws.
“Still, the first House hearing of the year on the subject suggested that some Republicans are newly open to changing immigration laws and offering legal status short of citizenship to some of the estimated 11 million people in the country illegally.”
The Journal article added that, “In another disagreement with the Senate, House Judiciary Committee members said they had concerns about moving forward with a comprehensive effort, rather than with more narrowly focused bills.”
Ashley Parker reported in today’s New York Times that, “House Republicans on Tuesday staked out what they cast as a middle-ground option in the debate over immigration, pushing an approach that could include legal residency but not a path to citizenship — as their Democratic counterparts favor — for the 11 million illegal immigrants already in the country.
“Republicans also signaled that they are open to the idea of breaking immigration legislation into several smaller bills, which would allow them to deal with the question of highly skilled workers, as well as a farmworker program, without addressing what Democrats and immigration advocates say is the larger issue of potential citizenship. Immigration advocates favor a comprehensive measure to enable them to use elements that have bipartisan backing to build support for broader legislation.”
Bloomberg writer James Rowley reported yesterday that, “The House Judiciary Committee’s Republican chairman urged a methodical study of potential changes to immigration law with a focus on improving U.S. economic competitiveness.”
The article noted that, “[Judiciary Committee Chairman Bob Goodlatte of Virginia] said Congress should ‘move forward methodically and evaluate this issue in stages.’ Further hearings will focus on border security and enforcement against illegal immigration, he said. Lawmakers should ‘fully vet the pros and cons of each piece,’ he said.”