Washington Insider-- Thursday

By DTN's Washington Insider

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

Next Boost in Federal Debt Ceiling Could Lead to Another Confrontation

The Republican-led Congress and Democratic President Obama could be on another collision course if the nation's fiscal picture continues to unfold as some now are predicting and Congress is called upon once again to increase the limit on the government's borrowing authority.

Analysts say it remains unclear –– absent another boost in borrowing authority –– when the Treasury might be forced to choose between paying the government's bills and defaulting for the first time on U.S. government debt. Also unclear is how much new borrowing authority the administration will seek. As in the past, Treasury can take various accounting moves to keep below the limit for an extended amount of time.

Both House Speaker John Boehner, R-Ohio, and Senate Majority Leader Mitch McConnell, R-Ky., have downplayed the likelihood of another government showdown over the debt ceiling, as occurred in 2011. But many Republicans see the White House's need for a debt limit boost as a key bargaining chip in any potential budget talks. The picture will become clearer once this tax season is over and Treasury knows how much new cash it has on hand.

***

'WOTUS' Rule Giving Headaches to Some Senate Democrats

A rule changing the definition of "waters of the United States" (WOTUS) that has been proposed by the Environmental Protection Agency and the U.S. Army Corps of Engineers would give those agencies Clean Water Act jurisdiction over a significantly larger number of waterways. Congressional Republicans are strongly opposed to the proposal, and now it appears that a number of more moderate Democrats also are leaning toward opposition.

Republicans have introduced legislation that would roll back EPA's authority, bills that will sail through the House and possibly could squeak by in the Senate. Democratic Sens. Joe Manchin, W.Va., Tom Carper, Del., Mark Warner, Va., Bob Casey, Pa., Heidi Heitkamp, N.D., Joe Donnelly, Ind., and Claire McCaskill, Mo., or their offices earlier this week told the press that they had heard significant concerns about the proposed WOTUS regulation, although each reportedly stopped short of endorsing any legislative attempts to impede the rule or block it altogether.

If those seven Senate Democrats join the 54 Republicans in the chamber in opposing the WOTUS rule, it would make the legislation filibuster-proof. However, it would not be veto-proof, if it came to that.

***

Washington Insider: What Will Farm Bill Costs Be?

There has been an undertone of congressional concern and considerable speculation since the passage of the 2014 farm bill regarding the law's potential cost, based on its shifts of large amounts of producer risk to the public. Recently David Rogers of Politico noted that the Congressional Budget Office's most recent baseline that shows annual payments to farmers could average $4.8 billion over the coming five years, up nearly 50% increase from CBO's estimates less than a year ago after passage of the 2014 farm bill.

In reality, no one really knows what the costs will be since producers have not yet signed up for the new programs. Still, CBO had to go ahead on the basis of assumptions. Politico says taxpayers may find some relief, because the same market changes that are driving up the cost of the commodity title will help reduce the cost of the heavily subsidized crop insurance program.

For now, until farmers have enrolled and the economic landscape is better defined, all those estimates are more a red flag than a final word, Rogers says. Still, the numbers are important indicators of the political risk undertaken by the new farm bill at a time of wholesale change in market prices, he says.

For most of the last two decades, the federal government distributed farm subsidies in the form of direct cash payments, which cost about $4.9 billion annually and were paid regardless of whether a farmer had losses — or even planted a crop. Last year's reforms were an attempt to meet producers' real needs, but the cost estimates that the House and Senate Agriculture committees used at the time "failed to keep up with the pace of price changes in commodity markets," Rogers asserts.

To measure the scale of these shifts, Rogers compares prices from 2009 to 2013 with CBO's new projections for the five-year life of the new farm bill: 2014 to 2018. Within that period, economists estimate that the average price of corn will be some 44% lower; soybeans are projected to drop 35% and wheat 26%. As a result, the two commodity support programs enacted to bolster producer revenue as a substitute for direct payments have jumped in cost.

The new "price-loss coverage" plan, which had seemed inexpensive when CBO was still assuming $4-per-bushel corn prices, will cost 67% more now that corn is being pegged in the $3.50-per-bushel range, Rogers says. In the case of the second big program, Agricultural Risk Coverage, the jump is less dramatic — about 26%. But that's in part because CBO is still assuming that only about a third of farmers will enroll in this more complicated alternative.

Indeed, the immediate payout under ARC is higher than what PLC offers in today's market, especially for corn growers. If more producers sign up for ARC, the cost estimates will certainly change and could potentially get larger in the first years.

As it stands now, CBO is projecting that the combined annual costs of ARC and PLC will average about $4.4 billion compared with CBO's projection of $2.94 billion for the same two programs last April.

That's a nearly $1.5 billion increase in itself and largely explains the spike in total payments. Other, smaller subsidy programs, like marketing loans, round out the total at $4.8 billion, but ARC and PLC account for more than 90% of the annual payments projected by CBO.

Rogers says that farm bill advocates would answer, "that the $4.4 billion is still cheaper than the old system of direct payments." But lawmakers are increasingly concerned about a political backlash if large subsidies to big producers again become a political issue.

Rogers also worries that for the next few years, at least, it is easy to envision corn growers under ARC getting double or triple what they received under the direct payment program. Peanut growers got $65 million in direct payments in 2014. By 2017, CBO projects that their payments could reach $209 million under PLC, Rogers says.

Rogers thinks that cotton spending could rise, as well, especially given the increased costs projected for marketing loan benefits. He notes that the extension of this support program — which is much smaller than ARC or PLC — received far less attention in the farm bill debate because its costs are typically low at a time of higher prices. But the most recent CBO baseline projects that the annual cost could average about $260 million — more than twice what was estimated last April.

Rogers opines that "Congress is still far away from finding the sweet spot that could promise more stability for taxpayers as well as producers. But the next few years will be a real test of how much crop insurance costs will come down to reflect lower prices even as these trends driving up commodity programs."

It is still too early to get a solid fix on how Congress will react to the "cost overrun problem" for farm programs, especially since participation and therefore costs remain to be seen. In addition, the intensity of the issue depends on the budget hawks' approach to spending; the leadership focus versus the administration proposals; and the extent to which trading partners focus on U.S. conformity to trade commitments.

One thing is clear: the early spring 2015 debates likely will be the beginning and not the end of the next round of U.S. farm policy debates, 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 and on the News and Analysis Menu of DTN's Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the U.S. Ag Policy, U.S. Farm Bill and DTN Ag News sections on their News Homepage.

If you have questions for DTN Washington Insider, please email edit@telventdtn.com

(GH/CZ)

Copyright 2015 DTN/The Progressive Farmer. All rights reserved.