Washington Insider-- Tuesday

Politics, Budget Issues and Hard Choices

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

US July Ag Trade Surplus Largest of the Calendar Year

The value of U.S. agriculture exports hit $10.64 billion in July against imports of $8.91 billion for a $1.734 billion trade surplus, the largest registered since December 2015, according to USDA's ag trade update.

The value of U.S. ag exports rose $625 million, the largest export figure since February and marking a third month in a row of rising export values. Imports, meanwhile, fell $347 million for fourth monthly decline in a row and the smallest import value since November 2015. That month was also the last time that U.S. ag imports were valued at less than $9 billion.

So far in Fiscal 2016, U.S. ag exports are valued at $107.36 billion, down from $120.39 billion at this point in Fiscal 2015. Ag imports are at $94.812 billion, down from the $96.29 billion level seen at this stage last year. For the U.S. ag trade surplus, the cumulative level stands at $12.55 billion, just over half the level seen at this point in Fiscal 2015 of $24.154 billion.

The higher export figure was telegraphed by the International Trade in Good data from last week and the overall International Trade data released earlier today. The updated trade forecasts issued by USDA last week have the export value outlook at $127 billion while imports are seen at $113.1 billion for a trade surplus. of $13.9 billion. With two more months to go, exports need to maintain above $10 billion each month to meet the USDA forecast and imports at around $9 billion. That could result in the U.S. ag trade surplus. being even higher than the updated forecast. And as we've noted, that should mean no more monthly trade deficits.

Farm-State Lawmakers Seek to Tweak MPP

Farm-state lawmakers, staffers working on ways to boost effectiveness of dairy program safety net. The 2014 Farm Bill established the Margin Protection Program (MPP) for dairy producers. But the program has come in for some increasing criticism, as just over 50% of producers have signed up for the program (signup is on an annual basis).

MPP is an insurance-like program for dairy producers, who select a margin level that they would like to protect on their milk sales. Farmers can choose to protect margins from $4-$8/cwt. The $4/cwt level costs $100 to cover administrative fees. From the $4/cwt level, coverage levels increase by $0.50 increment (e.g. $4.50/cwt, $5.00/cwt, etc) to $8/cwt. As the margin levels increase premiums also increase.

In early August, USDA published the milk margin for May/June 2016 and it was $5.76. The calculated USDA milk margin is used in the MPP to determine at what levels (and if) this program will make a payout.

For the May-June period, those with $6/cwt or more coverage received a payout. This was the first time the program paid at a $7/cwt or lower level. There were a couple payments in 2015 at the $8/cwt level and a payout in March-April 2016 at both the $8 and $7.50 coverage levels. The May-June payout announcement is the largest in the programs two-year history.

Some producers have questioned if MPP has been worth the cost of the premiums. This and other issues regarding the program are currently being reviewed by staffers in Congress. Sources say an effort is being made as to whether or not some changes could be made administratively rather than having to propose legislative changes, which would take longer.

Near the end of the 2014 Farm Bill debate, some funding was taken out of the dairy program to meet budget requirements. The changes made are now being reviewed.

Washington Insider: Politics, Budget Issues and Hard Choices

As Congress returns for the short work period ahead of the elections, a key question is how it will proceed with regard to the Fiscal 2017 budget. The Hill calls this as “the latest chapter in bang-your-head-on-the-wall, stupid, frustrating congressional politics.”

It notes that when the House and Senate get back to work, the GOP will have majorities on both sides of Capitol Hill but also will face a September 30 deadline to pass a spending bill to keep the federal government open. That means funding the military, keeping Social Security checks going out and assuring global investors that the world’s leading economic power is not about to grind to a halt.

If Congress fails to act, there will be a government shutdown weeks before a presidential election with early voting already underway in several states. The Hill sees this situation as “a potential loser for Republicans.”

In 2013, most voters blamed Republicans for the shutdown while only 29% blamed President Obama and the Democrats. “The same was true in a 1996 shutdown,” The Hill says and the majority of voters blamed the GOP-led Congress, not President Clinton.”

Then The Hill takes the gloves off to argue that “hardline conservatives in the House Freedom Caucus don’t care about history. They are willing to hold the federal government and fellow Republicans running for election hostage until GOP congressional leaders, Obama and the Democrats agree to more spending cuts.”

At the moment, Freedom Caucus members are already upset with Ryan for not doing more help one of their most prominent members, Rep. Tim Huelskamp, R-Kan., who lost his primary last month.

Also fueling anger inside the Freedom Caucus is the possibility that House Speaker Paul Ryan, R-Wis., will not take up a resolution to impeach IRS Commissioner John Koskinen. Ryan is not saying if he will bring the Caucus-led measure to the floor but he has expressed reservations about setting a precedent for impeaching a cabinet or sub-cabinet official, according to Bloomberg. The House hasn’t voted to impeach a Cabinet-level official in nearly 140 years. More than 100 law professors sent a letter to the Speaker last week urging him not to break the precedent.

Meanwhile, Ryan is frustrated by the Freedom Caucus’ refusal to make deals on any of his top priorities as Speaker, The Hill says. The House hasn’t passed an official Republican budget; it has taken no action on a replacement to the Affordable Care Act; and Ryan is stymied on the Transpacific Partnership because the GOP presidential nominee is running as an opponent of free trade. And even as the November election looms closer, Ryan finds himself in a high-profile showdown with those far-right members over the spending bill.

Freedom Caucus members say their only concern is restraining any growth in government spending. They are not persuaded by the fact that the federal deficit as a percentage of GDP has shrunk by about 75% since President Obama’s first year in office. In addition, between 2010 and 2014 discretionary spending as a percentage of GDP declined 25%. Meanwhile, “sequestration” has imposed fixed limits on spending after hardliners demanded it in 2013.

Many Republicans favor a short-term continuing resolution. However, the Freedom Caucus wants a multi-year deal with more sequestration-type restrictions, The Hill says. Their goal is to prevent a future Democrat in the White House and Democratic-majority in the Senate from boosting spending. Ryan is caught in the middle.

In addition, time is short, a fact that puts Senate Majority Leader Mitch McConnell, R-Ky., on the defensive over the stalemate in the House as he tries to shield vulnerable Republican senators from being damaged by a government shutdown, as could happen if the leadership pushes hard for a temporary spending bill that angers some GOP supporters.

The Hill argues that Ryan and McConnell still have scars from the 2013 shutdown and face, once again, an extremely difficult decision regarding whether they permit another yet another shutdown which risks “further dividing a party already split by its presidential nominee.”

So, what will happen? Locking in spending decisions far into the future is extremely difficult under any circumstances and seems unlikely just now. As a result, a modest continuing resolution to avoid any shutdown this fall seems likely. Other than that only emergency measures probably will get much attention while Congress hopes that the election will sort out at least a few issues, 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 US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.

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