Washington Insider--Moniday


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

USDA Lowers Overall 2016 Food Price Rise Forecast to 1%-2%

Americans will be spending less on food in 2016 than previously forecast, with the consumer price index (CPI) for food now forecast to rise 1% to 2%, down from the prior outlook for a 1.5% to 2.5% increase, according to USDA's Economic Research Service (ERS).

The tempered increase is coming due to another round of downward adjustments to the overall food price increases seen for food at home (grocery store) and several individual product categories.

USDA now forecasts food at home costs will be 0.5% to 1.5% higher than they were in 2015, compared to their prior outlook for a 1% to 2% rise. There were downward revisions to several categories, including some that now are forecast to be lower to substantially lower than they were in 2015. During May, USDA noted, "The food-at-home (grocery store or supermarket food items) CPI decreased 0.5% from April to May and is 0.7% lower than last May."

Beef and veal prices are now forecast to decline 4% to 3% (down from a forecast for a decline of 3% to 2%).

Pork prices are seen down 1.5% to 0.5% (down from prior forecast for prices to be down 0.5% to up 0.5%).

Egg prices are seen down 13% to 12% in 2016 (down from prior forecast for prices to be down 10% to down 9%).

Dairy prices are seen down 0.5% to up 0.5% (versus a prior outlook for a 1% to 2% rise).

USDA did include its usual caveat on the food price forecast -- that the value of the U.S. dollar, the price of crude oil and of course weather could alter these forecasts. But the clear trend from USDA economists in 2016 has been to temper the rate of increase for food prices. With the global uncertainty on the increase with the U.K. voting to exit the European Union, this at least provides consumers with some decent news -- food is still going to cost more than it did in 2015, but the increase will be less than the 20-year average and some key items like meat will cost a lot less at the grocery store than they did in 2015.

EU Leaders Expected to Push Trade Policy Talks to the Fall

Discussion of the Transatlantic Trade and Investment Partnership (TTIP) negotiations are expected to be put on the backburner until the fall when European Union leaders meet for a June 28-29 summit.

The postponement isn't a signal EU member countries are walking back from trade deals with the U.S. and other countries, EU sources told Bloomberg BNA June 22. The decision would instead be an acknowledgement of how sensitive trade issues are in public opinion.

After some conflicting statements from EU countries, European Commission President Jean-Claude Juncker in May urged the June summit to reiterate a commitment to completing TTIP. A broad debate over TTIP might be premature, EU ambassadors from the 28 member countries said June 21 ahead of the summit. "A number of ambassadors said 'Yes, it's important, but we have to have a proper debate. It should not be limited to say yes or no to whether we're still behind TTIP and CETA,'" one senior EU source was quoted as saying.

Some ambassadors said their respective governments didn't wish to debate trade until the EC had decided who should approve the new-style trade agreements with investment components like those in TTIP and CETA. Either the EU has "exclusive competence" or shares the competence with the 28 member countries, which is known as a "mixed competence."

The EC is expected to unveil its proposal on July 5 about handling competence in the CETA deal, which will then become a test case for future agreements.

An across-the-board debate at the highest level on trade issues this fall is most likely to occur at an EU summit scheduled for Oct. 20-21.

Washington Insider: Brexit

Well, it happened and the press was filled this weekend with joyous images of voters reveling in flag draped costumes celebrating Britain's vote to leave the EU.

At the same time, there is something of "morning after" sense that the realities of the event were poorly understood -- especially following the shocks of Friday's heavy-duty market upheavals. These seemed to come as something of a surprise to many who thought the vote might "send a message" to the elites.

So, the press is now working to calm an anxious world, although the New York Times reports that the British stock market, as measured by the FTSE 100 index, was down only 3.2% late Friday afternoon in Britain.

Other shocks were worse, and the Times says the bond and currency market reactions suggest "bigger problems are brewing." The 7.6% drop in the British pound against the dollar is seen as a "seismic move" the Times says -- "major currency pairs just don't do that. Since 2012, the average daily move in the pound-dollar exchange rate is 0.35%. This move is 21 times that." It means, for one thing, an enormous decline in the overall value of British wealth.

At the same time, the Times thinks, "the imminent danger to the underlying American economy is relatively small." It cites Glenn Hubbard, a top economic adviser to President George W. Bush and now dean of the Columbia Business School.

Hubbard notes that Britain is not even among the top five U.S. trading partners, but is the seventh largest. American exports to Britain last year totaled $56 billion, or just over 0.3 percentage point of gross domestic product. Overall, exports account for 13.45 of American economic output compared with roughly 30% for Britain, the Times says.

It notes that the 2015 slowdown in the United States' biggest trading partner, China, may have blunted domestic growth in the last year but even that hardly threw the American economy into a tailspin. "Nor should Brexit," the Times says.

However, there is an even greater long-term threat, the Times says. Since World War II, the United States, aided principally by Britain, has worked to reduce the potential for international conflict with particular success in Europe where it has encouraged democratic governance, promoted free markets and lifted billions of people out of poverty.

This was achieved by working with its allies to establish multiple reinforcing institutions, including NATO, the military alliance that now has 28 members; the EU, the economic alliance that will have 27 members when Britain leaves; the World Bank; and the International Monetary Fund. "In short, together America and Europe wrote the rules and norms by which much of the world now lives."

These policies also linked America and Europe in a common defense and common political cause that ended the Cold War, reunited Germany, built a new Europe and sought in one way or another to address every other major threat. "A crucial brick in that system is now in danger of being removed," the Times warns.

It sees this as a "stunning development" that comes at a time when these institutions were already under stress and when many people on both sides of the Atlantic had grown complacent about the relationship and its reinforcing commitments.

Compounding the problem is Russia's president, Vladimir Putin who has worked hard to undermine NATO and challenge the post-Cold War order by invading Ukraine, funding right-wing groups in France and elsewhere and recklessly brandishing his military power from the Baltics to Syria. And there are new challenges from China, a rising power that sometimes makes common cause with Russia. So, increased uncertainty across Europe is especially threatening.

Even now, Britain could remain in NATO, but less as a leading European power than as a more inward-looking nation consumed with national politics, "less able or willing to address the economic and security challenges of Europe as a whole and less inclined to support American-led responses to crises across the globe -- especially if other European countries step up their own assault on European integration."

The Times finds it hard to imagine that Europe could once again deteriorate into rival nation-states that could drift apart. However, it calls on the United States to work with Germany and France, the other two European powers, to understand the forces behind the Brexit vote and reaffirm and strengthen the alliance and its common agenda.

So, the world -- especially the United States and Europe -- faces enormous political challenges in the days ahead. The new isolationism clearly has the potential to threaten global market growth, but also could weaken the interlocking web of Western institutions and alliances that have helped guarantee international peace and stability for 70 years. Such isolationism played a role in the global depression of the 1930s and while the chances of a repeat of that experience still seem remote, it clearly is a threat that needs to be guarded against, especially as the Brexit proceeds, Washington Insider believes.

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