Washington Insider -- Monday

CBO Warns of Fiscal Impacts of Climate Change

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

U.S. Ag Trade Deficit for April a Record

U.S. agriculture registered a record $387 million trade deficit in April as exports were valued at $9.496 billion against imports valued at $9.983 billion, according to USDA's monthly ag trade update.

This marks the second consecutive monthly trade deficit after a $35 million deficit in March, based on USDA data available back to the mid-1970s. The prior record trade deficit on a monthly basis was set in June 2004 at $199 million, and the last time that there were two consecutive monthly trade deficits was in Jan. and Feb. 1969, according to USDA.

This brings the cumulative value of U.S. ag exports to $76.926 billion so far in Fiscal 2016, with imports totaling $66.8 billion for a trade surplus of $10.126 billion. All three areas are below to well below year-ago when ag exports were valued at $90.069 billion against ag exports at $67.147 billion for a trade surplus of $22.922 billion.

For April, the value of ag exports declined 7% compared to March while the value of imports only declined 3.5%.

USDA adjusted its ag export forecast May 27, forecasting exports for Fiscal 2016 at $124.5 billion with imports at a record $114.8 billion resulting in a forecast trade surplus of $9.7 billion. That compared to a February outlook from USDA for exports valued at $125 billion against imports of $118.5 billion for a trade surplus of just $6.5 billion.

US Natural Cheese Stocks Highest Since 1984

The volume of natural cheese held in cold storage in the United States has grown to 1.214 billion pounds as of the end of April 2016, the highest level since March 1984, according to the Economic Research Service (ERS).

Unlike 1984, inventories today are almost exclusively privately held and reflect the needs of a growing market instead of the consequence of government policy.

In the 1980s, the Milk Price Support Program (MPSP) was very active in purchasing large quantities of cheese to support dairy prices. The U.S. government owned about 60% of cheese stocks, which it often distributed through food donation programs in the United States and abroad.

In recent years, government purchases of dairy products fell to zero as market prices exceeded support prices, and the MPSP was repealed by the 2014 Farm Bill. At the same time, commercial cheese stocks have grown to help meet the growing demand for cheese.

Total commercial use of cheese, which does not include government donations, grew from 4.6 billion pounds in 1984 to 11.9 billion pounds in 2015, due to population growth as well as increasing consumption per capita and higher exports.

Commercial cheese stocks have been growing particularly fast in recent months, reflecting an increasing milk supply, relatively low export demand, and anticipation of further growth in the domestic market.

Washington Insider: CBO Warns of Fiscal Impacts of Climate Change

It seems that climate change is never far from the surface in Washington these days, either in terms of political fights or estimates of economic vulnerability. For example, Bloomberg is reporting that the non-partisan Congressional Budget Office (CBO) reported last week that annual U.S. hurricane damage could rise to $39 billion a year by 2075, reflecting both climate change and real estate development patterns.

CBO said its projections of annual U.S. damage increase from about $28 billion, or equivalent to 0.16% of U.S. economy currently, to 0.22% by 2075. Then, in what is sure to be a controversial evaluation, the agency says that, “roughly 45% of that increase is attributable to climate change and 55% to coastal development,” Bloomberg said.

CBO also thinks that the number of people likely to be affected will go up substantially. It estimated that the number of people living in counties where significant hurricane damage is expected stands now at about 1.2 million, it said, but by 2075 that figure is projected to rise to 10 million.

“The magnitude of hurricane damage in future years will be affected both by climate change and by coastal development,” the report said. “Each individual factor is likely to increase the amount of damage; moreover, each factor will amplify additional damage caused by the other. For example, rising sea levels will lead to stronger storm surges, which will compound the additional damage that will occur if more homes and businesses are built in vulnerable coastal areas.”

The amount of hurricane damage relief provided by the federal government also would rise under the CBO projections. If the amount stayed constant as a proportion of overall hurricane damage costs in the past decade, the CBO said, the federal government's tab would rise from about $18 billion annually to $24 billion annually.

Politico also reported on the CBO study, and emphasized that the report was a warning to lawmakers about the fiscal risks of climate change. It also said the report put the “studiously non-partisan agency at odds with Republican Party orthodoxy.”

It pointed out that “experts in the scientific community have concluded that a portion of those emissions are absorbed by the oceans, but a substantial fraction persists in the atmosphere for centuries, trapping heat and warming the Earth’s atmosphere,” Politico said.

Politico also emphasized that “most Republicans remain unconvinced that climate change is real,” with the party’s presumptive nominee, Donald Trump, calling it “a total hoax” and “pseudoscience.” House Speaker Paul Ryan, R-Wis., has said the science is inconclusive, Politico says. Sen. Jim Inhofe, R-Okla., famously threw a snowball on the Senate floor in February 2015 to argue that climate change is not real, Politico noted.

The CBO report included possible policies that Congress might enact to mitigate the rising costs of increased hurricane damage, Politico said. Among those was a “coordinated effort to significantly reduce global emissions.” The agency also acknowledged that international action is needed, as U.S. emissions are trending downward as a share of the global total.

Well, the CBO report seems unlikely to change many minds in Congress, especially this hyper-political year. However, it does give committee chairs some political cover to raise fiscal concerns, especially, in budget discussions. The new report makes an additional important point concerning the government costs involved in climate change issues and the increases expected in that spending in the near future. Clearly, agricultural producers have a large stake in the climate debates and should follow them closely as they emerge, Washington Insider believes.

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