Washington Insider - Friday

Angst in Agriculture

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Peterson Sees Farm Bill 'Savings' Evaporating

Savings projected from the 2014 farm bill may not materialize because low prices for corn, soybeans and other crops may trigger federal aid and eliminate savings, House Agriculture Committee ranking member Collin Peterson, D-Minn., this week told the Bloomberg news service. "If the prices stay where they are and the crop comes in the way it's projected, then we would lose our savings," said Peterson.

When Congress was considering the 2014 farm bill, the Congressional Budget Office estimated the new legislation would reduce farm program spending by approximately $14.3 billion over 10 years. But that estimate was based on crop prices remaining high enough during those 10 years that the ARC and PLC payments would not kick in.

During the farm bill debate, there were many warnings that historically high crop prices should not be the default numbers plugged into models intended to show the potential risk to the Treasury over the next 10 years. Those warnings were dismissed at the time and there may be some in Congress who may try to claim they were duped on the cost of the new farm supports.

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Some Lobbyists Now Okay for Membership on Government Advisory Commissions

Six years after proclaiming a ban on lobbyists serving on government advisory panels, the Obama administration is backing away from the prohibition –– somewhat –– by issuing new guidelines that allow lobbyists to serve "if they are specifically appointed to represent the interests" of a company, union, issue group or other lobbying client.

President Obama has ordered a number of restrictions on lobbyists since taking office in 2009, including a ban on lobbyists serving on Industry Trade Advisory Committees (ITACs) and other quasi-governmental advisory committees and boards. Lobbyists and their supporters frequently complained that the restrictions are unfair, especially because the federal lobbying law is loosely written and enforced, allowing lobbyists to de-register while continuing with advocacy work.

Supporters of the administration's restrictions on lobbyists have said the restrictions are justified because highly paid advocates give their clients an unfair advantage in Washington decision-making and might harm the broader public interest. But by those standards, an employee of Boeing or General Electric who was a member of an ITAC also should be banned to prevent an unfair advantage being taken.

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If everyone who is knowledgeable about how trade affects a particular industry is prevented from being on a trade commission, it begs the question of who should be a member?

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Washington Insider: Angst in Agriculture

Well, it had to happen, I suppose. Just two crops after the worst drought in recent memory cut 2012 yields in many areas, "perfect" weather now is causing its own type of anxiety. Prices are returning to something like normal, or below — as everyone knew they would, eventually.

As a result, ag economists at major universities have become rock stars by telling everyone in enormous detail about the problem, and speculating on how it will play out, and how to take advantage of the new farm bill. USDA has pumped some new money into universities' old farmer advisory services and the 24/7 news cycle is pushing ag journalists deeper into the forecasting business.

This week, the staid old Washington Post donned its "farm advisor on the Potomac" hat and elaborated on the farm machinery business woes, after John Deere on Wednesday reported a 15% decline in profit for its fiscal third quarter. This follows years of sustained growth, the Post noted, but the company has now seen its sales fall in each of the first three fiscal quarters of 2014.

Tractor sales, the Post intoned, are often a barometer of agricultural sector health and have been especially weak in the United States, and may be weak next year as well. "America's entire agricultural sector, as it happens, is having a pretty mediocre 2014 (and equally mediocre feeling about 2015, for that matter)."

The problem, the Post continues, is that prices are "too cheap for American farmers' liking." In some cases, the weak prices are even causing farmers to sit on their produce until prices improve, the Post thinks. "Either through permanent or temporary storage, you're going to see huge quantities going into storage," Scott Irwin, professor of agricultural and consumer economics at University of Illinois, is quoted as saying last week.

Then, for some reason, the Post also quotes Gregory Ibendahl, associate professor of agricultural economics at Kansas State as suggesting that "record harvests are rarely bad news. Farmers "can't do anything about prices," and simply focus on producing as much as possible in any given year. Large stockpiles of corn today "should give way to commensurately large cash piles of profit down the road, even if it means storing much of it until prices recover." That may have meant something to the editor or writer.

Still, the Post goes on to play the "food supply threat" card. Low prices can be devastating, especially if they sustain themselves over long periods of time." Sustain themselves? "If you're a farmer facing continual low prices, you might have to take some land out of production.... Somewhere along the line you might even reach a point where you have to go out of production."

The U.S. farm sector is not quite there yet, the Post thinks. But, "that doesn't mean there isn't potential for such a scenario." Turning back to the associate professor, "I think it [low prices] will continue for a lot longer than most people think it will," Ibendahl is quoted as saying. "American farmers certainly hope that doesn't prove to be the case; nor do tractor manufacturers like Deere." Well, yes.

Somehow, these pundits fail to note reality — this is one especially good crop at a time when the world faces sharp, sustained demand expansion for agriculture and food. In addition, there is the continuing suggestion, at least, that it may be harder to sustain good crops in the future as climates change.

In addition, it is important to keep in mind that there are no federal programs now that "lock up" grains when prices are low, policies that priced U.S. producers out of many markets in the 1980s. As a result, markets now tend to clear, and to do so rather quickly. Producers may delay sales for some time, but they are unlikely to invest in facilities to hold anything like the amounts the government held earlier. That is a boon to livestock and dairy producers, as well as for grain exporters who are able to expand domestic sales and exports so surpluses don't hang over producers' heads for long periods.

You might say that production volatility still leads to price volatility (as it always has) and price adjustments are never easy, especially when the changes are large.

The sector has had a long run of rising returns and is financially sound these days. It is well aware that both poor crops and good ones stress the system, especially for those who have built on unprotected risk. Farm suppliers also expect demand fluctuations when sector adjustments are underway.

While the press likely will continue to predict disasters whenever it can, it is clear that the sector is far more resilient today than under old-time supply control policies, a fact that needs to be emphasized along with the current market events, Washington Insider believes.


Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products, on the News Menu on Farm Dayta, and on the News and Analysis Menu of DTN's newest Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com.

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