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

Ag Policy Update–15 May 01 (Sunup Program to be aired 17 May 01)

1. The Fed met yesterday & cut interest rates once again. Any surprises?

–The question wasn’t whether they would cut rates, but how much.

–The half percent cut was anticipated by most analysts.

–Some others had estimated a more modest quarter percent cut.

–This brings Fed cuts in interest rates to 2.5% since January when they dramatically shifted gears from worrying about inflation to being concerned with possible recession.

2. Is this good news for producers?

–Whether it’s a quarter or half percent cut, it continues to be good news in the near term for producers who need borrowed funds to operate.

–It will also slightly lessen the negative impact of rising energy costs, but won’t offset them.

–The economy continues to send mixed signals, but mostly weak.

–As we indicated a few weeks ago, the Fed is at or near the end of lowering rates and will likely sit back and wait for stronger economic signals before doing more.

3. Now that the House Ag Committee has wrapped up its hearings to take input on the next farm bill, what’s the latest?

–15 farm/commodity groups have brought recommendations to the committee over the past 4 months.

–While the committee will continue to seek selected input, this is the end of a key stage before the writing begins.

–Chair Combest has indicated a desire to have the farm bill written this summer, although Sen. Lugar, Senate Ag Committee chair, doubts that will occur.

–Those who contend a consensus has formed during last year’s hearings and this year’s Washington hearings say this is a reasonable, if challenging goal.

–Others suggest that there isn’t yet a consensus and too many difficult issues are yet to be resolved.

–Given that the last farm bill was 5-7 months past deadline, and the previous bills were debated right up to the deadlines, this will be a remarkable first if the farm bill is written a year in advance.

4. For those who see consensus, give us a brief outline of the next farm bill?

–Here’s a brief summary:

(1) Maintaining flex & flex payments are at the top of the list.

(2) Countercyclical payments to make emergency ad hoc payments automatic will also be part of the package.

(3) Some continued reform of crop insurance

(4) Income tax relief such as the FARRM accounts

(5) Continuation of environmental incentives such as CRP& EQIP

(6) Pilots or programs for new environmental incentives

(7) Expanded support for foreign market access.

5. And you mentioned others who don’t think it is realistic that a new farm bill will be written this year. What reasons are they giving?

–Interestingly, they’re coming from different sides. Here’s a summary:

(1) The Administration has expressed some concern that too much money is being considered, and that more attention needs to be paid to agribusiness interests.

(2) Many farm groups have indicated that much more money needs to be available for producers.

(3) Some fiscal conservatives and non-farm state congressional reps think that too much money is going to producers and the last thing we need to do is make it automatic.

(4) Some object to more open markets and want more protection for US ag products.

(5) Some contend that there needs to be more attention to concentration by passing a merger moratorium.

(6) Some are very doubtful that FARRM accounts will do much good.

6. The budget was big news last week. Do we now have a good sense of what this means for agriculture?

–We have the rough dimensions of the box, although it could change somewhat.

–Let’s remind the readers that when Congress approved the budget plan last week they were saying “This is what we’d like to do and will try to do, but our options remain open.”

–Now Congress will get down to passing spending bills that may or may not fit into the budget plan.

–It’s up to the leadership and the representatives as they vote on individual bills to stay within that plan.

–While the debate around the budget plan amounts to high drama, it is often ignored by Congress.

–Since there’s very little bipartisan support for the plan, any high-profile debate could derail key components of the plan.

7. So what do agricultural producers seem to be getting out of this?

–Specifically, the plan provides an added $5.5 billion in FY 01, and $73.5 billion for the next 10 years.

–If ag has problems like the past 3 years, that amount will fall far short of what many consider necessary.

–Outlays for the past 3 years have averaged about $20 billion.

–That average is estimated for the next few years, then tapers off for the last 6 years to $18-$14 billion/year.

–The plan offers more than the Bush Budget, but much less than the Democratic alternative.

–Given that tax cuts and selective spending increases are politically popular, projections of surpluses over the next 10 years are questionable.

8. Looking ahead to later today, Vice President Cheney is expected to unveil his plan for energy policy. Does agriculture have anything to fear here?

–As always, it depends on your perspective.

–It’s not likely there will be much short term relief.

–In the longer term, there will likely be encouragement for increased production, which should relieve upward pressure on energy prices.

9. Congress:

a. Recent/Current:

–Senate Ag Committee confirmation hearing on JB Penn for USDA undersecretary for farm & foreign ag services, Lou Gallegos for assistant secretary for administration, Mary Waters for Assistant secretary for congressional relations (9 May)

–Senate Ag Appropriations subcommittee FY2002 budget hearings for ag/related agencies: FDA, DHHS (10 May)

b. Upcoming:

–Senate Ag Committee confirmation hearings for William Hawkes for USDA undersecdretary of marketing & regulatory programs, & Eric Bost for undersecretary of food, nutrition & consumer services (16 May)

–Senate Ag Committee reviews farm bill credit title (16 May)

–House Ag subcommittee public hearing on national dairy policy (22 May)

–House Ag Committee review FTAA potential w/Secretary Veneman & USTR Robert Zoellick (23 May)

–House Ag subcommittee reviews conservation programs (23 May)

–House Ag subcommittee continues review of conservation programs (6 Jun)

–House Ag subcommittee reviews federal farm policy in Macon, GA, field hearing (23 Jun)

c. Congressional Calendar:

--As of 21 May, about 44 weekdays remain in this Congressional session.

May 25 ‑ June 4 Memorial Day District Work

Period