Ag Policy Update–9 JAN 02
(Sunup Program to be aired 10 JAN 02)

1. As part of our Oklahoma Ag Outlook for 2002, let's discuss what's in store for the general economy, the ag economy, and ag policy. Larry, you indicated we're in a recession; any hope of improvement soon?

–We're seeing mixed signals.

–Housing construction is up & may be stable if interest rates remain low.
–The Consumer Confidence Index is up, but will bounce around for a few months.

–Unemployment is up, & may approach 6.5-7%

–Oil prices surprised many analysts and plunged in 2001, but OPEC concerns for profits may reduce supplies & increase fuel prices this year.

–The trade deficit will continue to climb.

But, aren't the Fed's interest rate cuts helping?

–Interest rates are at record lows & may go even lower in the first few months of the year.
–Inflation continues to be absent, for the most part, but we'll see some signs of it by midi-year. And that suggests that interest rates will begin to rise again in the second half of the year.

–The Federal Reserve's year-long push to drive down interest rates, an economic stimulus package and rebounding consumer spending will likely allow the economy to move out of recession by summer.

–Global economic weakness may linger through much of 2002, keeping global agricultural markets soft.

2. The ag sector has been in poor health for the past few years. What are the prospects this year?

–The economic slump for agriculture began to show signs of some recovery in 2001.
–However, the weakening economy in Japan, Argentina and other parts of the globe do not bode well for a strong recovery.
–New markets in China and Cuba could help.

But, net farm income was up in 2001. Why so cautious?

–Net farm income is up, but 40% is from direct government payments.
–It will be stable to higher this year, but only with another infusion of emergency government support.
–Because of distributional inequities in farm program payments, smaller operations will not be helped much and many will face the tough question of survival.

–Land values continue to be stable to higher, likely related to the capitalization of government payments.

–Prices paid by farmers are increasing at a slower rate than prices received by farmers. However, if inflation shows up later this year, that could work against producers who want to replace equipment.

–The new farm policy will resolve many questions about the short and intermediate term for agriculture, allowing more of the larger and mid-sized operations more opportunity to remain viable.

3. Finally, what do you see in store for ag policy this year, especially the next farm bill?

–Here are 2 scenarios:
1. If Demos heard from constituents to get on w/a new bill, they'll begin to compromise & we'll see something much like House bill passed by Mar.
2. If Demos heard from constituents to hang in there, we'll get emergency aid between May-Aug, the farm bill will become an election year political football, & we'll still be debating the issue in the Fall, & possibly not have a 2002 farm bill.

–Given that Bush has taken the lid off the candy jar, money no longer seems to be an issue.
–I think that Bush will be told by Republican farm-state reps to back off on his more philosophical criticisms of ag dependence on the govt teat.
–So, there could be something for everyone, except those who want less spending.
–If it's a 5-yr bill, back-loading could allow it look like they're limiting spending.
–If it's a 10 yr bill, it could approach $200 bil.

So, what can you safely predict about the next farm bill?

1. Direct payments to participating program producers will be similar to flex payments of the past 5 years, with little change in the distribution of payments.
2. There will be a new counter-cyclical support program that automatically provides financial support to producers when prices or income decline below a certain level. This will supposedly make unnecessary the need for farmers to seek ad hoc emergency assistance from Washington.
3. Marketing loans and loan deficiency payments will still exist.
4. Payment limits will be somewhat higher.
5. Conservation programs will be expanded and funded at higher levels.
6. Trade, rural development, nutrition, forestry, research and other existing programs will be maintained and funded at current or higher levels.
7. Total authorized spending will be higher than in the past.

–Finally, it will be passed and signed somewhere between March and December.

4. Any caveats to these predictions?

–If catastrophic attacks occur in the US, or the US loses control of the events in Central Asia, then all bets are off.
–There would then likely be:
--a longer recession,
--less federal support for agriculture,
--more global market uncertainty,
--and uncertain results in the 2002 election.

 

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