Ag Policy Wrap-up - Dr. Larry Sanders, Oklahoma State University

1. Chairman Greenspan & the Federal Reserve surprised most analysts yesterday by lowering interest rates another half percent. What’s happened?

–Viewers may recall that the Fed had run rates up in 1999 & 2000, seeing inflation as the primary enemy of economic growth.
–With indications in late 2000 that the economy was slowing down and stalling, the Fed began to contemplate reversing directions.
–Since the first of the year, the Fed has dropped interest rates 2 %, one of the most aggressive periods of monetary policy in history.
–The target has shifted from inflation to recession.
–Dismal annual reports from corporate America, falling stock markets, layoffs and high energy prices have brought the economy to 0-1% growth.

2. What’s this interest rate drop mean for agriculture?

–Producers carrying debt or planning to incur debt will see this as relatively good news because the cost of borrowed capital is going down.
–Agricultural suppliers will possibly lower prices if a significant portion of their cost of doing business involves carrying debt.
–We’ll continue to see a general trend up in prices for energy this year, according to most experts.
–With commodity prices low to flat, that’s putting the squeeze on producers.
–This will surely add “fuel to the fire” to get Congress to come thru with another supplemental emergency aid package between June and October.
–But it will likely be distributed via AMTA payments.
–The energy price increases will also continue to be a drag on much of the economy, possibly slowing the rise out of the current slump.
-If the economy continues to be stalled the Fed may even consider another drop in interest rates, although I think that is now less likely.

3. President Bush is in Quebec for the Summit of the Americas. What do producers need to be watching for?

–Recall the elder Bush over 10 years ago began the push for the Free Trade Area of the Americas, a plan to have a free trade agreement like NAFTA for all of North, Central & South America.
–Movement has been fairly slow, especially with a lack of trade negotiating authority for the President since 1997.
–There is hope by some that Bush will recommit the US to achieving an agreement by 2005.
–Some members of the House Ag Committee are also in Quebec on an unofficial basis to make sure agriculture’s interests are discussed.
–In the short run, we have perhaps less to gain in trade agreements with South America where we have been running trade deficits in ag trade.
–If the economies of Brazil, Argentina, and Colombia begin to develop at a faster pace and if they look more to the US for purchases, then the longer term picture may be more optimistic.

4. Before leaving for Easter recess, the Senate Budget Committee approved a resolution on the FY2002 budget. What are some of the details for agriculture?

–The Senate resolution provides for a $845.7 billion “rainy day” fund over the next 10 years ($453 billion if you take out Medicare).
–This is earmarked for emergency use only. The importance is that it provides a chance for agriculture to get emergency aid when Congress deems necessary.
–The downside is that it doesn’t guarantee the money will be there for ag, but they compete with other “emergency requests”.
–The Ag budget also callse for a 2.7-2.8% increase, not including emergency funds. If past emergency funds are considered, it is actually a cut in the Ag budget.

5. USDA Secretary recently spoke out on farm policy. It sounded like she was gently warning Congress about some actions. What can you tell us?

–Venneman is concerned that some proposals may hurt US competitiveness in the global market.
–She noted that there a few key questions that need to be answered in the discussions leading up to the next farm bill:

--What is the sustainable level of farm support? Is it $20 billion a year? Is it $15 billion a year?
--Should the next farm bill be a one‑size‑fits‑all farm bill, or should it address structure issues?
--Will farm policy changes meet U.S. WTO obligations?
--What should be the role of conservation programs?

–While her concerns may have merit, she seems to be responding to agribusiness concerns that Congress might put too much weight on what producers want.
–Also, she may be speaking for the President with concerns that Congress is considering increasing subsidies to producers, a move which could jeopardize his tax cut plan.

a. Recent/Current:

–Easter recess

b. Upcoming:

–Senate Ag Committee will consider USDA nominees (24 Apr)
–Senate Ag Committee will review ag trade issues (25-26 Apr)
–House Ag Committee will review farm commodity programs with the corn industry (25 Apr)
–Senate Ag Appropriations subcommittee FY2002 budget hearings for ag/related agencies:
–USDA budget (25 Apr)
–production assistance & farm economy (3 May)
–FDA, DHHS (10 May)
–House Appropriations Ag Subcommittee FY2002 hearing schedule:
–Budget Overview (25 Apr)
–USDA Secretary (26 Apr)
–FNS (2 May)

c. Congressional Calendar:

--As of 23Apr, about 67 weekdays remain in this Congressional session.

                    April 7 - April 23            Spring District Work Period
                    May 25 - June 4             Memorial Day District Work Period
                    May 28                            Memorial Day
                    June 14                           Flag Day
                    June 30 - July 8              Independence Day District

                   August 4 - Sep 4              Summer District Work Period
                    September 3                    Labor Day
                    September 18                  Rosh Hashanah
                    September 27                  Yom Kippur
                    October 5                          Target Adjournment