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Thursday Morning Update: Budget- Policy Issues; Trade; and, the Ag Economy

Budget- Policy Issues

Janet Hook and Kristina Peterson reported in today’s Wall Street Journal that, “House and Senate Republicans have resurrected efforts to curb spending for Medicare and other safety-net programs, releasing budgets this week that bring government entitlements back to the center of political conversation.

“The Senate GOP budget released Wednesday calls for saving $5.1 trillion over 10 years, including $4.3 trillion by repealing the Affordable Care Act and curbing entitlement programs such as Medicare, Medicaid and food stamps.”

The Journal article noted that, “Each chamber will vote on its own budget, before merging them and voting on a unified budget setting overall spending levels for the fiscal year. The policy proposals described in the budgets aren’t binding and stand little chance of becoming law under Mr. Obama, but they send a message about GOP priorities.”

Jonathan Weisman reported in today’s New York Time that, “Over all, the Senate version hews closely to the budgetary intent of the House proposal. It repeals the Affordable Care Act, turns Medicaid and food stamps into block grants and cuts domestic programs to balance the budget by 2025 without tax increases.”

The Times article added that, “Both budget committees should complete work by Thursday on their plans, which could be considered by the full House and Senate next week.”

Philip Brasher reported yesterday at Agri-Pulse that, “Farm groups and anti-hunger advocates are well-positioned to avoid any major cuts in agriculture or nutrition spending under the long-term budget plans unveiled in the House and Senate.

“Senate Republicans proposed a budget resolution Wednesday that calls for balancing the budget in 10 years with deep cuts in all forms of non-defense spending, including food stamps, conservation and farm groups. But the measure is essentially toothless, because for the most part it wouldn’t direct committees, including Senate Agriculture, to propose any cuts that would be implemented through a separate process known as budget reconciliation.

“The House resolution, unveiled Tuesday, would require the House Agriculture Committee to propose a fairly minimal level of cuts, $1 billion over 10 years, in agriculture or nutrition programs.”

Mr. Brasher explained that, “Without reconciliation requirements for committees such as Agriculture, the resolution would be little more than a GOP wish list.

“‘We hope by the time the final resolution is crafted, the House will agree with the Senate to leave the farm bill alone in the budget resolution,’ said Ferd Hoefner, policy director for the National Sustainable Agriculture Coalition.

“Senate Agriculture Chairman Pat Roberts, R-Kan., and his House counterpart, Mike Conaway, R-Texas, have been arguing that they shouldn’t be required to make any cuts since the 2014 farm bill already reduced some spending.”

Meanwhile, DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “Capping crop-insurance subsidies for the highest-income farmers would have minimal effect on the program, though the savings in federal dollars from such a move might not be as large as expected.

“That was the conclusion reached by the Government Accountability Office in a report released Wednesday analyzing the impact if means testing were put in effect to reduce premium subsidies for the largest 1% of farmers.

“Yet, cutting the premium subsidies for the largest farmers also doesn’t appear to generate significant savings for the crop insurance program. If premium subsides had been cut by 15 percentage points for the largest farmers from 2009-13, the federal government would have saved about $70 million over those five years, or about $14 million a year.”

Mr. Clayton pointed out that, “Premium assistance last year cost taxpayers about $6.5 billion. At $14 million a year in savings, reducing premiums on the largest farmers would equate to less than a fraction of a penny for every dollar spent on the program.

“Still, the GAO continues coming out with reports pitching possible savings in crop insurance. This marks the fourth such report since last year and the second in consecutive weeks in which the office has recommended areas to cut taxpayer costs for crop insurance. Just last week, GAO called on USDA to increase crop-insurance premiums in counties with higher losses and insurance claims.”

The DTN article added that, “The Obama administration did not propose income means testing this year for crop-insurance premium subsidies, but the administration did propose capping premium subsidies at 50%, which includes reducing the subsidy level on the harvest-price option. The House budget proposal released earlier this week would leave budget cuts up to the House Agriculture Committee, but the plan calls for about $100 million a year in cuts from USDA’s entire budget, suggesting crop insurance would be held harmless under the House budget.”

In a separate article, Philip Brasher reported yesterday at Agri-Pulse that, “A leading critic of crop insurance said he’s likely to use next week’s debate on the Senate budget resolution to test support for cuts in the program.

“Sen. Jeff Flake, R-Ariz., told Agri-Pulse he was planning ‘a number’ of amendments, which are non-binding since a budget resolution isn’t signed by the president.”

The Agri-Pulse article indicated that, “Flake introduced a bill (S 463) last month to eliminate premium subsidies for revenue policies with harvest-price option (HPO), which was designed to protect farmers against losses when commodity prices spike and yields are poor. Critics say it has resulted in windfall payments to some producers.

“Flake said he also may propose other amendments that would attack the insurance program, including by imposing income limits on premium subsidies…A report issued by the Government Accountability Office on Wednesday is likely to provide Flake and his allies some ammunition in the debate. The report said that cutting premium subsidies on the highest-earning policyholders would have a ‘minimal effect’ on the program while saving taxpayers millions of dollars.”

Also yesterday, the House Appropriations Agriculture Subcommittee heard USDA budget related testimony from Lisa Mensah, the Under Secretary for Rural Development.

In her prepared remarks, Under Secretary Mensah noted that, “Rural childhood poverty is a persistent issue of grave concern to the future vitality of rural communities. Poverty work is often focused on urban areas, but rural children must not be forgotten; today one in four rural children live in poverty; in Mississippi and New Mexico, it is one in three. To support specific efforts to address childhood poverty in rural places, the budget requests $20 million for a Rural Child Poverty pilot. We believe USDA Rural Development is well positioned to coordinate and support the work of organizations around the country that are effectively tackling rural poverty in innovative ways. The budget also requests $12.8 million for the Healthy Foods Financing Initiative. This initiative will increase the availability of affordable, healthy foods in underserved rural communities and create or preserve quality jobs in rural areas through the development of grocery stores and other food retailers.”

In his opening statement at the hearing, Subcommittee Chairman Robert Aderholt (R., Ala.) noted that, “Three notable increases are for new pilot programs and initiatives. One is the Rural Child Poverty Pilot. The budget request includes very little justification for it. Another is the Healthy Food Financing Initiative. Research has shown similar initiatives are ineffective, and it has been rejected by Congress several times over the past few years. A third is the Rural Corps pilot program. This seems to me to be what Rural Development should be doing every day.

“Given the budget situation, perhaps we should be getting back to basics. We probably should not be trying out new things, particularly when we have to work so hard to ensure there is sufficient funding to meet the basic needs of rural America for housing, water, business development, and electric and telecommunications systems.”

 

Trade

Shawn Donnan reported yesterday at The Financial Times Online that, “The US has escalated a trade battle with Indonesia, taking the southeast Asian nation to the World Trade Organisation over its import restrictions on apples, grapes and chicken parts. But more important than the case itself may be the timing.

“The move comes as President Barack Obama is gearing for a battle to win trade negotiating powers from Congress that he needs to close the Trans-Pacific Partnership with Japan and 10 other economies. If successful, this will be the biggest trade agreement the US has sealed in two decades.

“The TPP and the ‘fast-track’ powers he needs from Congress to close the deal are fiercely opposed by US labour unions and environmental groups as well as many within the president’s Democratic party. That means Mr Obama needs all the help he can get from the country’s agricultural lobbies.”

The FT article pointed out that, “But US farming groups, which wield immense power in Congress, still argue that too many overseas markets remain closed to their products whether because of tariffs or other protectionist measures.

“That has put opening up more markets for agricultural exports near the top of the Obama administration’s trade agenda and increased the already high political premium available from taking a tough stand for US farmers in venues such as the WTO.”

The House Agricultural Committee held a hearing yesterday on the “Importance of Trade to U.S. Agriculture.”

Chairman Mike Conaway (R., Tex.) noted that, “In passing TPA, Congress defines trade priorities along with the terms and conditions under which the President may enter into trade agreements. TPA would pave the way for our trade negotiators to finalize key trade deals that work for agriculture by giving our negotiating partners the confidence to bring their best offers to the table. If we are unsuccessful in our efforts to gain access to markets for American food and fiber products, other countries will fill that demand. That is why it is time to pass TPA.”

And American Farm Bureau Federation President Bob Stallman noted that, “Farm Bureau has long supported Congress extending Trade Promotion Authority (TPA) to the president to provide U.S. trade negotiators the leverage they need to complete negotiations and set the stage to put into effect international trade agreements. Currently, TPA is important to ongoing work on the Trans Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP). For these negotiations to move forward while maintaining the focus on improving and expanding trade between our negotiating partners, we need to have TPA in place.”

William Mauldin reported in yesterday’s Wall Street Journal that, “A diverse bloc of House Republicans is threatening to join Democrats in opposition to the White House’s trade push, imperiling an effort long seen as one of the few prospects this year for bipartisan cooperation.

“Most Democrats in Congress and nearly all unions oppose President Barack Obama’s quest to win a major trade deal with 11 other Pacific countries. That has put pressure on Republican lawmakers and business groups, who widely support the deal.

But some 50 to 60 House Republicans are expected to buck GOP leadership on trade policy, say supporters and opponents following the battle. The group may have the clout to block legislation, known as fast track, that is critical to sealing a final pact on the Trans-Pacific Partnership with Japan and 10 other countries. Fast track would let Congress approve or reject a trade deal, but without amendments.”

 

Agricultural Economy

A news release yesterday from AgriBank indicated that, “Commodity prices are the greatest challenge facing agricultural producers in 2015, according to a poll of Farm Credit directors from America’s heartland.

More than 61 percent of the directors — from the boards of 17 Farm Credit lenders in 15 states and of AgriBank, their St. Paul-based funding bank — said commodity prices are the greatest challenge facing ag producers this year. The directors, most of whom are also farmers or ranchers, indicated the next biggest challenges are input costs (over 22 percent), Mother Nature (more than 7 percent) and Farm Bill implications (nearly 6 percent). Land rents and interest rates were each cited by less than 3 percent of the respondents.”

University of Illinois agricultural economist Gary Schnitkey indicated in an update this week at the farmdoc daily blog (“Possible Per Acre Gross Revenues for Corn in 2015 in Central Illinois”) that, “Possible gross revenues for corn grown in 2015 are estimated for a Logan County, Illinois farm having a 196 bushels per acre expected yield. Revenues are estimated for differing cases based on changes in prices and yields from 1972 through 2014. The mid-point of 2015 gross revenue range is $828 per acre, $52 below the estimate of total costs for cash rent farmland of $880 per acre. Gross revenue is estimated to exceed $880 per acre 23% of the time.”

The front page of yesterday’s Los Angeles Times featured two articles relating to the ongoing drought in California, a summary was posted yesterday at FarmPolicy.com.

Meanwhile, David Kesmodel reported in today’s Wall Street Journal that, “Egg-laying hens raised cage-free exhibit a wider range of natural behaviors than more-confined birds, but cage-free facilities have higher hen-mortality rates and lower air quality, according to food-industry-backed research published on Wednesday.

“Cage-free hens can perch, nest and forage more than chickens reared in the two other major U.S. commercial hen-housing systems, both of which use cages, the study found. Birds occupying large cages show more diverse behaviors than those in the small cages that dominate the egg industry.

The study found little difference in egg quality among the three systems, and no indication that hens in any of them experienced acute or chronic stress.”

And Bloomberg writer Alan Bjerga reported yesterday that, “A widely used insecticide developed by Bayer AG and tied to deaths of honeybees isn’t the main cause of the fatalities, University of Maryland researchers said in a study that may weaken arguments used by environmentalists seeking to ban the chemical.”

Keith Good