The Economy and Agricultural Policy Outlook Update May 2017 Larry D. Sanders & Dave Shideler
index Macroeconomy slides 3-12 Federal budget slides 13-22 Farm economy slides 23-31 The Farm Bill slides 32-42 Oklahoma economy slides 43-47 2
The General Economy in 2017: Tug/pull between new President, Federal Reserve, Congress & key trading partners Fiscal stimulus: increase inflation Monetary policy: limit inflation & slow growth in GDP Deficit likely to increase Foreign capital attracted to US investments $ strengthens Trade deficit increases Unemployment may increase Standard of living likely declines Farm asset values likely decline and farm income will shrink Reduced staffing in federal farm offices such as FSA and NRCS Suggests longer waits/more difficulty to get assistance, benefits 3
Recession likely in 2017-2020? Yes 9 of past 10 recessions occurred during GOP admin Protectionism risky Dollar strength problematic Tax cuts risky Expansion overdue for contraction Global economy in jeopardy No Unemployment low Inflation low Interest rates relatively low Federal infrastructure spending potential Wages rebounding GDP, Consumer Spending & Business Investment rebound from 2008 4
https://tradingeconomics.com/united-states/indicators 5
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2016: -$500.6 b 7
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Billion $ Lower Bulk Export Prices and Greater Export Competition 152.3 $140 $120 $100 Records 114.2 134 112.5 $80 $60 $40 $20 Imports Exports Trade Surplus 43 21.5 $0 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 13 15 17 Updated by Sanders
China ends 2003 block of US beef exports US allows Chinese cooked poultry imports US may export natural gas to China China will expedite safety reviews of US biotech Cooperation with financial transactions China will issue bond underwriting/settlement licenses to 2 qualified US financial institutions Chinese entrepreneurs invited to Washington summit Cross-border clearance between China central bank and US CFTC will be a focus US will provide equivalent treatment of Chinese banks China will allow foreign-owned financial service firms to provide credit rating services THIS IS A PRELIMINARY AGREEMENT
Coming to America: Chickens from China The U.S. Department of Agriculture on Thursday gave four Chinese companies approval to export cooked poultry products to the United States. But it's largely a symbolic move. That's because the only chickens that China can legally export to the United States must first be imported from countries that have USDA approved poultry standards. America, Canada and Chile are the only countries that make the grade. The USDA is still reviewing China's food safety system for processed poultry. In other words, Chinese companies would need to have chickens shipped in frozen from America, then cook them, refreeze them and send them back to...america. This is not an efficient way to do business. By most accounts, chicken producers have not found a way to make it economically viable. --CNN, Nov. 7, 2014, http://money.cnn.com/2014/11/07/news/chinese-chickens/
Increases for Defense, Homeland Security, VA Most agencies cut 31% cut for EPA 21% cut for USDA
http://www.crfb.org/papers/re-estimating-presidents-budget-reasonable-economic-assumptions
TRUMP BUDGET FY18 AGRICULTURE Down 5 percent Limit subsidies to farmers, including a cut in government help for purchasing crop insurance. Limit spending on environmentally friendly conservation programs Limit some rural development programs Total spending: $132.3 billion. Congressional approval needed for $18 billion
TRUMP PROPOSED BUDGET, AGRICULTURE
EPA BUDGET Total spending: $5.7 billion. Congressional approval needed: $5.7 billion.
BUDGET PUSH TO CUT REGS Roll Back Burdensome Regulations. The American people deserve a regulatory system that works for them, not against them a system that is both effective and efficient. Each year, however, Federal agencies issue thousands of new regulations that, taken together, impose substantial burdens on American consumers and businesses big and small. These burdens function much like taxes that unnecessarily inhibit growth and employment. The President is committed to fixing these problems by eliminating unnecessary and wasteful regulations. To that end, the President has already taken four significant steps: --Launch a Regulatory Freeze... --Control Costs and Eliminate Unnecessary Regulations requires Federal agencies to identify for elimination at least two existing regulations for each new regulation they issue. It generally also requires agencies to ensure that for 2017, the total incremental cost of all new regulations be no greater than $0.... Budget of the U.S. Government:, Fiscal Year 2018, OMB, U.S. Government Printing Office, 2017.https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/budget/fy2018/budget.pdf
BUDGET PUSH TO CUT REGS (CONTINUED) Enforcing the Regulatory Reform Agenda... identify regulations that eliminate jobs or inhibit job creation; are outdated, unnecessary, or ineffective; or impose costs that exceed benefits... Reform Financial Regulation and Prevent Taxpayer-Funded Bailouts... by rolling back the regulatory excesses mandated by the Dodd-Frank Act.... Core Principles for regulating the United States Financial... which includes preventing taxpayer-funded bailouts and restoring accountability within Federal financial regulatory agencies.... conducting a thorough review of the extent to which existing laws, regulations, and other Government policies promote (or inhibit) these Core Principles Budget of the U.S. Government:, Fiscal Year 2018, OMB, U.S. Government Printing Office, 2017.https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/budget/fy2018/budget.pdf
Total US tax revenue equaled 26 percent of gross domestic product (GDP), well below the 34 percent average for developed countries Income and Profits Taxes: Taxes on personal income and business profits made up 48 percent of US tax revenue in 2014, a higher percentage than in most other OECD countries, where such taxes averaged 34 percent of the total. Australia, Denmark, and New Zealand topped the United States in this category, generating just over half of their total revenue from such taxes. In the United States, personal income taxes alone generated 30 percent of total tax revenue compared with 25 percent on average within the OECD. US Social Security and Goods/services taxes were lower than average. http://www.taxpolicycenter.org/briefing-book/how-do-us-taxes-compare-internationally
FARM INCOME
1920 1922 1924 1926 1928 1930 1932 1934 1936 1938 1940 1942 1944 1946 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 140,000,000 120,000,000 100,000,000 80,000,000 US NET FARM INCOME & GOVT PAYMENTS, 1920-2017F Small family farms (sales less than $250,000) accounted for 90 percent of U.S. farms. Large-scale family farms, plus nonfamily farms, made up 10 percent of farms but accounted for 85% of production in 2012. About 2/3 of Government payments go to support top 10-12% of producers 2013: 123,700,000 60,000,000 40,000,000 20,000,000 1920-1932: Govt. Payments= $0 2004: 31.6 b. 2017: 62,300,000 2017: $12.5 b. 0 Direct Government Payments Net Farm Income 24 Adapted from USDA sources
DISTRIBUTION OF GOVT. SUPPORT FOR US: ROUGH ESTIMATE (2017 FORECAST) Top 10% Bottom 90% Total Net Farm Income $53 b. $9.3 b. $62.3 b. Direct Government Payments $8.4 b. $4.1 b. $12.5 b. # Farms 200,000 1,800,000 2,000,000 Average Government payment/farm $42,000 $2,278 $6,250 25
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$62.3 b 27 https://data.ers.usda.gov/reports.aspx?id=17833#p0603f67bfc4b443bb4f79407d9cd7cfe_8_119it0r0x36
1985 Farm Bill 1996 Farm Bill 2008 Farm Bill 28
OKLAHOMA FARMS, 2008-2015 Year # farms (1,000) Ac farmland ($ mil.) Insurance premiums ($ mil.) Commodity insurance indemnities ($ mil.) Govt payments ($ mil.) Net farm income ($ bil.) 2008 86 35 236.5 82.4 316.8 1.077 2009 84 34.9 169.3 327.9 229.2 0.239 2010 83 34.7 173.5 58.5 318.7 1.323 2011 82 34.4 245.8 413.9 341.8 1.904 2012 80 34.4 210.6 236.7 295.6 1.969 2013 80 34.4 209.4 319.9 356.8 1.857 2014 80 34.3 240.3 468.7 1013.2 2.755 29 2015 78 34.2 195.1 169.7 534.3 2.166 https://www.ers.usda.gov/data-products/farm-income-andwealth-statistics/charts-and-maps-about-your-state/ https://www.ers.usda.gov/data-products/farm-income-andwealth-statistics.aspx
DISTRIBUTION OF GOVT. SUPPORT FOR OKLAHOMA: ROUGH ESTIMATE (2015 FORECAST) Top 10% Bottom 90% Total Net Farm Income $1.841 b. $0.325 b. $2.166 b. Direct Government Payments $358 m. $176.3 m. $534.3 m. # Farms 7,800 70,200 78,000 Average Government payment/farm $45,897 $2,511 $6,850 30
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THE CURRENT & NEXT FARM BILLS & CROP INSURANCE SUBSIDIES 32
https://www.ers.usda.gov/topics/farm-economy/farm-commodity-policy/projectedspending-under-the-2014-farm-bill/
DEFINITIONS 2014 Act: restructures approach to crop insurance providing not only subsidized crop insurance for natural hazards, but addition of ARC (Ag Risk Coverange), PLC (Price Loss Coverage), SCO & STAX for yield and revenue loss options MPCI: Multi-Peril Crop Insurance Supplemental & ad-hoc disaster assistance: SCO: Supplemental Coverage Option ELAP: Emergency Assistance for Livestock, Honey Bees & Farm-raised Fish EFRP: Emergency Forest Restoration Program LFP: Livestock Forage Program LIP: Livestock Indemnity Program NAP: Noninsured Assistance Program TAP: Tree Assistance Program ELP: Emergency Loan Program ECP: Emergency Conservation Program Disaster Set-Aside Program SURE: Supplemental Revenue Assistance Program; 2008-2014 program to replace ad hoc disaster aid Ad hoc disaster aid: pre-2008, disaster assistance provided as deemed necessary 34 by Congress STAX: Stacked Income Protection Plan for cotton revenue losses
Shields, D.A., Congressional Research Service, Proposals to Reduce http://nationalaglawcenter.org/wpcontent/uploads/assets/crs/r43951.pdf Premium Subsidies for Federal Crop Insurance, March 20, 2015, 7-5700, R43951.
Percentage of Farmers and Value of Premium Subsidies, by Individual Farmers Receiving Subsidies of $40,000 or Less, or More than $40,000 in 2011 Estimated Federal Government Crop Insurance Costs per Dollar of Expected Crop Value for 2005 through 2013 https://www.gao.gov/key_issues/farm_programs/issu e_summary
CLIMATE CHANGE & CROP INSURANCE To promote greater resilience to climate change effects in U.S. agriculture, we recommend that the Secretary of Agriculture direct RMA to consider working with agricultural experts to recommend or incorporate resilient agricultural practices into their expert guidance for growers, so that good farming practices take into account long-term agricultural resilience to climate change. -- Recommendations for Executive Action, GAO Report to Congressional Requesters, Climate Change: Better Management of Exposure to Potential Future Losses is Needed for Federal Flood and Crop https://www.gao.gov/assets/670/666698.pdf Insurance, October 2014.
The next farm bill 2018 2019 2020??? 2014 farm bill was a 5-yr bill expected to last thru Sep 2018 Discussions have begun Risk management continues to be the framework--crop insurance focus Maintain omnibus concept or split off food programs? Specialty crops and conservation as compromise issues? The Team that will write/move the farm bill SENATE Pat Roberts (R-KS) HOUSE Michael Conaway (R-TX) Debbie Stabenow (D-MI) Collin Peterson (D-MN) 41
THE NEXT FARM BILL The President s budget, while DOA, forms one corner of the debate unfolding Calls for less spending in all areas, especially farm subsidies and food programs Senate & House Ag Committees moving forward with plans to draft farm bill proposals in 2017 & write formal version in 2018, with a vote before September 2018 Major drivers: Internal--low NFI & cash flow problems; External--the budget STAX may face major renovation & cotton may rejoin the program commodities (provided WTO agreement not violated) How to maintain the risk management-crop insurance foundation and still improve support levels when NFI tanks will be challenge Major challenges also to satisfy omnibus needs of commodities, conservation, food/nutrition, research/development, specialty crops, while recognizing budget limits Specialty crop safety net likely different from crops (disaster & market aid vs. crop insurance & revenue loss) Wildcards may have impact
OKLAHOMA ECONOMY
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Infrastructure projects affecting OK pitched to the White House http://www.apmreports.org/story/2017/05/11/trump-infrastructure-projects
A NEW STATE BUDGET FY 18 Level/slight increased budgets for a few agencies (Education, Corrections, Public Safety) Cuts for most agencies 4.5% for many 6.5% cut for Higher Ed (after Board of Regents action) BUT, $2 million more for Cooperative Extension Some revenue-raising measures will be challenged in court, possibly leading to a Special Session that will re-work the budget