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The Economy, Political change & the next farm bill

The US Economy: An Update. The Economy, Political change & the next farm bill. Dave Shideler Larry D. Sanders April 2013 Oklahoma State University. Macroeconomy & agriculture--linkages. Federal Budget. Jobs. Agricultural Industry, Agribusiness, Rural America. Global Markets.

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The Economy, Political change & the next farm bill

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  1. The US Economy: An Update The Economy, Political change & the next farm bill Dave Shideler Larry D. Sanders April 2013 Oklahoma State University

  2. Macroeconomy & agriculture--linkages Federal Budget Jobs Agricultural Industry, Agribusiness, Rural America Global Markets Capital Energy 2

  3. How the economy works…

  4. Jobs: • http://tipstrategies.com/archive/geography-of-jobs/ Jobs & the economy…

  5. 7.7% 7.6% 7.8%

  6. Net Farm Income & Direct Government Payments (1991-2013F) $128.2 b. $ Billion $117.3 b. $10.9 b. Note: OK producers received $110.8 mil. in govt. payments in 2011 & $1.5 bil. in NFI; G/NFI = 7%.

  7. US Agricultural Trade Balance, 1991-2013 ($mil/FY; agricultural product only) $143.5 b. Exp. $26.5 b. surplus $117 b. Imp. http://www.fas.usda.gov/gats/BICOReport.aspx

  8. 2012

  9. http://www.oilnergy.com/1gnymex.htm

  10. Sequester & Budget Overview

  11. 2012 “fiscal cliff” successfully avoided/delayed • Compromise found half of $1.2 trillion in deficit reduction • Pushed sequester of $600 bil. forward to March • New 2013 “dual cliff” • Debt ceiling • Artificial Congressional requirement to increase debt ceiling to allow gov’t to pay bills • Complicated with Budget Continuing Resolution (CR) • Sequestration to find remaining $600 bil—Began March 1 • Half defense spending; half other program spending; Some programs are exempt (SS, Medicare, Medicaid, SNAP, etc.) Current Macro-economic Policy Situation

  12. Congress voted earlier this year to keep $16.4 trillion debt limit but won’t apply until mid-May • Passed HR 933 Continuing Resolution (CR) 26 Mar & signed into law • Leaves sequester $85 bil. cuts in place • Includes special funds for a few programs including meat inspection & military college aid • Funds Federal govt thru Sep. (no more Mid-May deadline) • Obama budget is different from these actions Congress attempts to “kick THE CAN DOWN THE road” … again

  13. If you’ve heard some pundit/politician say “the current crisis of sequestration is silly, stupid and unnecessary”, they are generally correct. If you’ve heard them say “this will have catastrophic impacts on the general economy”, they are generally incorrect. If you’ve heard them say “this will have little/no impact on the economy”, they are generally incorrect. Sequestration: Reference point…

  14. During fiscal negotiations in 2011, a compromise was reached to allow Congress & the President time to find cuts/revenues to reduce the budget deficit Part of the agreement voted on & passed by both Houses was a backstop that, if they did not find solution, sequestration would impose automatic across-the-board cuts The idea was they would surely do anything to avoid the sequester The deadline for sequestration was subsequently extended to March 2013 Sequestration is now in effect & cuts are occurring Sequestration

  15. “Most exempt programs are mandatory, and include Social Security and Medicaid; refundable tax credits to individuals; and low-income programs such as the Children’s Health Insurance Program, Supplemental Nutrition Assistance Program, Temporary Assistance for Needy Families, and Supplemental Security Income. [child nutrition programs, commodity supplemental food, & certain conservation programs*] Some discretionary programs also are exempt, notably “all programs administered by the Department of Veterans Affairs. Also, subject to notification of Congress by the President, military personnel accounts may either be exempt or reduced by a lower percentage.” Special rules may also limit cuts to selected programs, such as Medicare. (CRS, Jan 2013) Sequestration Exemptions

  16. $85 billion in cuts required; half from defense; half from non-defense federal programs Across-the-board Noted exemptions, make cuts in non-exempted programs deeper Expect 5-10% cuts in non-defense programs if sequester goes into effect Details unsure; awaiting OMB instructions What must be done this year…

  17. Preliminary OMB estimates of fy13 cuts… CRS, January 2013

  18. SNAP, Child nutrition programs, commodity supplemental food programs Programs supported by CCC: “…commodity loan contracts entered into before the sequestration order shall not be reduced.” “it is unclear whether the Section 256 special rule applies to any of the more recent farm commodity, conservation, and other programs that are funded by the CCC.” (CRS, January 2013) Farm Credit Operating Expenses Fund & Insurance Fund, Biomass Energy Development, FCIC Fund Exemptions for selected USDA programs…

  19. 8.5% cut in direct pay (MILC, SURE, NAP) Cuts in conservation programs—technical assistance Suggested furloughs NASS suspends some reports Also, moving some WIC applicants to waiting lists because of cuts Ag research cut Rural housing cut Farm loans cut USDA sequester cuts—reduce farm bill spending by over $6 bil.

  20. Furloughs/reduced hours/reduced service: • IRS, EPA, HUD, NOAA, NPS, FAA Other agencies

  21. Safety Net and Income programs are exempt • Includes Medicaid, SNAP, CHIP, Child Nutrition Benefits, TANF, SSI, Social Security programs, Veterans Benefits • Loan obligations made prior to March 1, 2013 under Low-Rent Public Housing • Health Care cuts capped at 2% • Medicare service provider payments reduced by 2% • Community health centers • Indian Health Services • Federal Payroll associated with mandatory funds (military payroll is at the discretion of the President) • Programs subject to obligation limitations in appropriation (e.g., Federal Hwy aid; Hwy Traffic Safety Grants; Motor Carrier Safety Grants, Ops & Progs; Grants-in-Aid for Airports) Rural Program Impacts

  22. Reinhart & Rogoff 2010 report that “90% debt/GDP” caused dramatic decline in economic growth quickly embraced by conservatives/others as the proof for dramatic budget cuts • Recent study shows their study flawed, & no certain correlation between ratio & economic growth • Many economists were suspicious of the study from the beginning • Not because of data errors, but because of their premise.  • In times of crisis when the private sector shrinks, the only way to grow the economy is to temporarily expand government spending.  • The debt will be repaid in future years because of the healthier economy repaying its share of taxes.  • Reinhart/Rogoff & their supporters continue to disagree w/that, without any factual basis. The flaw in austerity argument

  23. US Budget Surplus/Deficit ($bil.) ? Source: US Bureau of Economic Analysis, 2009 (www.bea.gov) http://zfacts.com/p/318.html

  24. http://www.businessinsider.com/imf-world-gdp-growth-forecast-2013-map-2013-4?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=Money%20Game%20Chart%20Of%20The%20Day&utm_campaign=Moneygame_COTD_041613http://www.businessinsider.com/imf-world-gdp-growth-forecast-2013-map-2013-4?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=Money%20Game%20Chart%20Of%20The%20Day&utm_campaign=Moneygame_COTD_041613

  25. http://climate.ok.gov/index.php/climate/climate_trends/precipitation_history_annual_statewide/CD00/prcp/Annual/oklahoma_south-central_u.shttp://climate.ok.gov/index.php/climate/climate_trends/precipitation_history_annual_statewide/CD00/prcp/Annual/oklahoma_south-central_u.s

  26. Short-intermediate term: • Climatologists predicting 3-15 years of ongoing drought pattern in OK- TX region 2011+ • Longer term: • Continued debate about global climate change • Risk & uncertainty require adaptation and mitigation options & consideration of public & private investment • If govt. isn’t funding, what will the private sector be likely to do? Weather Projections

  27. Oklahoma Economy UPdate

  28. Location Quotients, 2011, and Real GDP Growth Rates, United States and Oklahoma, 2002-2011 and 2010-11 Source: BEA, http://www.bea.gov/; accessed March 7, 2013 @ 9:30 am * This sector grew faster than the United States during the same period.

  29. Unemployment Rates by CountySource: BLS,http://www.bls.gov, accessed 3/6/13 @ 3:30 pm

  30. Unemployment RatesSource: BLS,http://www.bls.gov, accessed 3/6/13 @ 3:30 pm

  31. Employment Gains and Losses Source: Compiled from OESC Economic Research and Analysis, “Oklahoma Employment Report,” December 2012

  32. Gross Receipts to State Treasury Source: “Gross Collections Dip in February,” News Release from State Treasurer Ken Miller, March 4, 2013. http://www.ok.gov/triton/modules/newsroom/newsroom_article.php?id=222&article_id=11052

  33. Gross Receipts to State Treasury Source: “Gross Collections Dip in February,” News Release from State Treasurer Ken Miller, March 4, 2013. http://www.ok.gov/triton/modules/newsroom/newsroom_article.php?id=222&article_id=11052

  34. Source: “Gross Collections Dip in February,” News Release from State Treasurer Ken Miller, March 4, 2013. http://www.ok.gov/triton/modules/newsroom/newsroom_article.php?id=222&article_id=11052

  35. Currently, “rural” used as an eligibility criteria only for Rural Development programs • Rural defined as any area other than: • A city or town that has a population of greater than 50,000 inhabitants; • And, any urbanized area contiguous and adjacent to a city or town described in clause i. • Exceptions • Water and Wastewater Grants/Loans require population to be no greater than 10,000 • Community Facilities program require population to be no greater than 20,000 • Housing programs limited to 20,000 population in nometro, 10,000 population in metro counties How USDA defines rural

  36. “Rural in Character” exception (require Undersec. approval): • Urbanized area, as defined above, that has 2 points more than 40 miles apart AND is not contiguous with a city or town of population greater than 150,000 inhabitants; • And it is within ¼ mile of an eligible rural area. • “Grandfather” clause (Housing only): An area designed as “rural” prior to 1990 but became “not rural” due to the 1990 or 2000 Censuses is able to maintain its rural status until the 2010 Census data is available, and the population does not exceed 25,000, the place is still ‘rural in character’, and it has a serious lack of mortgage credit for lower and moderate-income families How USDA defines rural (cont’d.)

  37. Proposed definition: Anywhere except an incorporated municipality or unincorporated area greater than 50,000 total population • Allows the “Grandfather clause” to expire • Proposal to give preference in the evaluation criteria to smaller places • Unrelated, but not: Cotton County is now included in the Lawton, OK Metropolitan Statistical Area (i.e., it is now a METRO county)

  38. RFS & Biofuel addendum

  39. Gasoline $3.52 Diesel 3.36 CNG 2.05 E85 ethanol 4.58 Propane 3.64 B20 biodiesel 3.50 B99-B100 4.16 US-DOE, Clean Cities Alternative Fuel Price Report, July 2012. Energy equivalent , average fuel prices (July 2012)

  40. Quantity of Feedstock Required for a2,000 tons per day Biorefinery • 350 days of operation per year • 700,000 tons of biomass per year • 17 dry tons per truck • 118 trucks per day • 24 hours per day • 4.9 trucks per hour • ? cost of road maintenance Slide courtesy of F. Epplin 2012

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