THE ECONOMY, POLITICAL CHANGE & THE NEXT FARM BILL

The US Economy:An Update

Dave ShidelerLarry D. Sanders

April 2013Oklahoma State University

22

Agricultural Industry,

Agribusiness, Rural America

Global Markets

Jobs

Energy

Federal Budget

Capital

Macroeconomy & agriculture--linkages

3

HOW THE ECONOMY WORKS…

4

JOBS & THE ECONOMY…

Jobs: http://tipstrategies.com/archive/geograp

hy-of-jobs/

5

7.7%7.8%

7.6%

Net Farm Income & Direct Government Payments (1991-2013F)

020406080

100120140

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

net farm income

govt payments

NFI-G

6

$ Billion

$128.2 b.

$10.9 b.

$117.3 b.

Note: OK producers received $110.8 mil. in govt. payments in 2011& $1.5 bil. in NFI; G/NFI = 7%.

US AGRICULTURAL TRADE BALANCE, 1991-2013 ($MIL/FY; AGRICULTURAL PRODUCT ONLY)

0

20000

40000

60000

80000

100000

120000

140000

160000

Series2 Series1

$143.5 b.Exp.

$117 b.Imp.

$26.5 b.surplus

http://www.fas.usda.gov/gats/BICOReport.aspx

82006 2007 2008 2009 2010 2011 2011

-

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000 US Exports of Agricultural Products

Pacific/Asia

Canada/Mexico

European Union

Mideast

Central, S.Ameria, & Caribbean

Year

Thousands o

f D

ollars

2012

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

SEQUESTER & BUDGET OVERVIEW

CURRENT MACRO-ECONOMIC POLICY SITUATION 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.)

CONGRESS ATTEMPTS TO “KICK THE CAN DOWN THE ROAD” … AGAIN

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

SEQUESTRATION: REFERENCE POINT…

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 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 EXEMPTIONS

“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)

WHAT MUST BE DONE THIS YEAR…

$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

PRELIMINARY OMB ESTIMATES OF FY13 CUTS…

Funding category

Defense Nondefense

Nonexempt discretionary

9.4% 8.2%

Nonexempt mandatory

10% 7.6%

Medicare & mandatory selected health programs

n/a 2%

CRS, January 2013

2012 Federal Budget (Billion Dollars)

Mandatory, 2,079DOD/DHS/VA,

850

Interest, 340

Other, 490

2011 Budget Breakdown (Billion Dollars)

0 5 10 15 20 25 30 35

SBA

FAA

FBI

EPA

Commerce

Interior

Labor (no UIB)

Farm Programs

Energy

Justice

EXEMPTIONS FOR SELECTED USDA PROGRAMS…

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

USDA SEQUESTER CUTS—REDUCE FARM BILL SPENDING BY OVER $6 BIL.

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

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OTHER AGENCIES

Furloughs/reduced hours/reduced service: IRS, EPA, HUD, NOAA, NPS, FAA

RURAL PROGRAM IMPACTS 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)

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24

THE FLAW IN AUSTERITY ARGUMENT

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.

25Source: US Bureau of Economic Analysis, 2009 (www.bea.gov) http://zfacts.com/p/318.html

US Budget Surplus/Deficit ($bil.)

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009 20

120

120

1

-1800

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

200

400

-330

-225-177

-151-50

70

124

232 268

-157.8

-374-413

-331

-314-162

-1173

-1588 -1537

-1550

-1300

?

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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_041613

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28http://climate.ok.gov/index.php/climate/climate_trends/precipitation_history_annual_statewide/CD00/prcp/Annual/oklahoma_south-central_u.s

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WEATHER PROJECTIONS

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?

OKLAHOMA ECONOMY UPDATE

LQ%chg, 2002-

11%chg, 2010-

11Total Output 16%* 1%

Agriculture 1.38 -12% -15%Mining 5.78 4%* 3%Utilities 1.33 6%* -8%Construction 1.01 -11%* 0.3%*Manufacturing 0.91 37%* 4%Wholesale Trade 0.88 18%* 6%*Retail Trade 1.08 21%* 2%*

Transportation 1.11 25%* 0.1%Information 0.61 19% 2%Finance 0.59 21% -0.1%

Real Estate 0.77 15%* -2%*Prof. & Tech. Svc 0.58 24% 4%

Management 0.60 12%* 0.4%*Admin & Waste Svc 1.03 36%* 2%Educ. Svc 0.50 -3%* -1%Health Care 0.97 33%* 4%*

Arts & Rec 0.61 60%* 6%*

Accomm. Svc 0.88 20%* 3%Other Services 0.98 -13% -1%Government 1.37 7%* -1%

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UNEMPLOYMENT RATES BY COUNTYSOURCE: BLS,HTTP://WWW.BLS.GOV, ACCESSED 3/6/13 @ 3:30 PM

Jan

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0%

2%

4%

6%

8%

10%

12%

Metropolitan Micropolitan Non Core State US

UNEMPLOYMENT RATESSOURCE: BLS,HTTP://WWW.BLS.GOV, ACCESSED 3/6/13 @ 3:30 PM

EMPLOYMENT GAINS AND LOSSESJob Gaining Industries

(Top 5 in descending order of jobs gained)

Job Losing Industries(Top 5 in ascending order of

jobs lost)

Annual Change (Dec ‘11 – `12) Annual Change (Dec ‘11 – `12)

Accommodation & Food Services (6,700; 5.2%)

Health Care & Social Assistance (-2,600; -1.4%)

Wholesale Trade (5,400; 9.0%) Prof., Scientific, & Tech. Services (-1,400; -2.2%)

Retail Trade (5,400; 3.2%) Information (-500; -2.1%)

Manufacturing (5,000; 3.8%) Other Services (-200; -0.3%)

Local Government (4,600; 2.3%)

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

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

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

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

HOW USDA DEFINES RURAL

Currently, “rural” used as an eligibility criteria only for Rural Development programs

Rural defined as any area other than:i. A city or town that has a population of greater than

50,000 inhabitants;ii. And, any urbanized area contiguous and adjacent to

a city or town described in clause i. Exceptions1. Water and Wastewater Grants/Loans require

population to be no greater than 10,0002. Community Facilities program require population to

be no greater than 20,0003. Housing programs limited to 20,000 population in

nometro, 10,000 population in metro counties

HOW USDA DEFINES RURAL (CONT’D.)

“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

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)

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RFS & BIOFUEL ADDENDUM

ENERGY EQUIVALENT , AVERAGE FUEL PRICES (JULY 2012)

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.

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