Washington Insider-- Tuesday

Severe Drop in Global Trade

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

USDA May Shift CRP Contract Starts if Enrollment Cap Hit

The 24-million-acre cap for the Conservation Reserve Program (CRP) for Fiscal 2017 looms large for the popular program, with USDA setting procedures in place to deal with that limit put in place via the 2014 Farm Bill, procedures that could result in some CRP contracts to be delayed until October 2017.

At the end of August, there were 23.892 million acres in CRP with contracts on 1.65 million acres set to expire September 30. But the level of acreage will not decline the full 1.65 million acres with the start of Fiscal 2017 as there were 411,000 acres accepted via General Signup 49 and another 101,000 acres were approved during the Grasslands signup which all would have October 1 contract start dates.

Plus, there are another 317,000 acres of ground from continuous CRP signup that have contracts which start with Fiscal 2017. USDA said that continuous CRP enrollment during Fiscal 2016 was 836,000 acres, the highest continuous signup level on record.

The combination of new entries and contract expirations should translate into around 23 million acres in the CRP to start Fiscal 2017, just 1 million acres below the cap of 24 million in place for both Fiscal 2017 and Fiscal 2018.

USDA put a deadline of Sept. 16 in place for approving CRP contracts as Fiscal 2016 wound down to ensure they had "accurate data about CRP in light of the statutory acreage enrollment cap, and to make policy decisions" relative to Fiscal 2017, according to a Farm Service Agency (FSA) notice sent to state and county FSA offices.

As for the continuous signup for Fiscal 2017 (Signup 50), county offices are being instructed to accept all continuous signup offers. However, for any non-Conservation Reserve Enhancement Program (CREP) continuous signup offers, FSA said producers could defer the effective date to October 1, 2017 (Fiscal 2018), or request contracts with an effective date during Fiscal 2017.

However, for those requesting the Fiscal 2017 contract start, FSA said those bids would be accepted on a non-competitive first come, first serve basis and would be placed in a batch process to make sure enrollment levels to not exceed 24 million acres. Those contracts would be approved based on a notification from FSA Washington on a monthly basis "pending availability of acres."

If there is not room under the enrollment cap, FSA said those offering ground "will be offered an October 1, 2017, effective date" for those contracts.

USDA Officials Puzzled at Record-Low Farmer Survey Responses

A record-low 66.5% of farmers responded to surveys sent out by the National Ag Statistics Service (NASS) in their data gathering for the September Small Grains Summary, according to USDA Chief Economist Robert Johansson.

In remarks to USDA Radio, Johansson confirmed 66.5% was a "record low" and the response rate had been over 79% years ago. Not only is the data derived from the surveys important to estimate crop size, but Johansson said it also has an economic impact.

"With the new farm bill programs, ARC (Agriculture Risk Coverage) and PLC (Price Loss Coverage) in particular, we need to have good data on what acreage and yields are for farms out there in order to provide a good estimate to FSA (Farm Service Agency) so they can determine what their ARC/PLC payments are going to look like," Johansson explained. He noted USDA will try to figure out ways to get a better response rate from farmers in the future.

According to the Small Grains Summary, NASS said it conducted their objective yield survey in 10 states that accounted for over 73% of the 2016 winter wheat production. The objective yield data is derived from NASS enumerators visiting the same plot each month until crop maturity. "After the farm operator harvested the sample field, enumerators revisited the sample to collect data in order to measure harvesting loss," NASS noted.

Information from operators was gathered via mail, Internet, telephone and personal interviews, NASS said, the portion of the data gathering where the response rate has fallen. "Approximately 66,400 producers were interviewed during the first two weeks of September and asked questions pertaining to planted and harvested area as well as yield and production," according to the report description of "survey procedures." In the 2015 Small Grains Summary, NASS noted approximately 66,000 producers were interviewed.

The September Ag Survey conducted by NASS included barley, oats, rye and wheat, according to the lock-up briefing NASS prepared, with a sample size of 66,384, and was conducted in all states except Hawaii.

Washington Insider: Severe Drop in Global Trade

Amid fierce political debates in Washington, a wonkish statistical report by the World Trade Organization was noted by the Washington Post. It reported a sharp slowdown in global trade, at least in part reflecting an unusual level of political hostility toward globalization.

The Post's focus was a WTO report global trade will expand at the slowest pace this year since the financial crisis, reflecting weak economic growth and low levels of investment in factories and infrastructure in China, Brazil and North America. The group slashed its estimates for 2016 trade growth by more than one-third, to just 1.7% and also cut its estimate for 2017 growth to a range of 1.8% to 3.1%, down from a previous estimate of 3.6%.

The Post noted that both major party presidential candidates, Donald Trump and Hillary Clinton, have staked out positions skeptical of increased trade and show strong opposition to the big Asia trade deal that President Obama hopes to pass later this year.

In an especially ominous note, the Post pointed out that while political candidates have expressed concern about particular elements of trade policy in the past "perhaps no two candidates had so strongly agreed on the ill effects of expanded trade since the 1928 campaign that led to the election of Herbert Hoover."

As a result, the Post says, economists are increasingly warning that the growing tide of protectionism could further weaken international trade, which has been an important driver of global growth and element of global security.

"There is this strong anti-globalization movement that's really dangerous," said Caroline Freund, a senior fellow at the Peterson Institute for International Economics and a former top economist for the World Bank, told the Post. "One thing we know for sure is that closing our borders is not going to support growth or living standards in the U.S."

In the debate at Hofstra University last week, the two candidates repeated their differing but strong levels of hostility to trade. Mrs. Clinton reaffirmed her opposition to the Trans-Pacific Partnership and "emphasized the need to negotiate smart, fair trade deals." Meanwhile, Mr. Trump went farther deriding deals like NAFTA calling it "the single worst trade deal ever approved in this country."

The Post also suggested that the candidates' attitudes could lead to "misguided policies that aim to protect workers, but instead clamp down on prosperity, growth and trade."

In its news release, the WTO warned against this kind of backlash. "The dramatic slowing of trade growth is serious and should serve as a wake-up call," said Roberto Azevedo, the WTO's director-general. "We need to make sure that this does not translate into misguided policies that could make the situation much worse, not only from the perspective of trade but also for job creation and economic growth and development which are so closely linked to an open trading system."

The WTO noted that trade could pick up in the second half of 2016, but said that the outlook remained unclear because of factors like the potential fallout from Britain's decision to leave the European Union, changes in monetary policy around the world and growing anti-trade rhetoric.

Data from the International Monetary Fund reveals a similar slowdown in trade. In a speech in Toronto this month, IMF Managing Director Christine Lagarde urged countries to do more to help workers left behind by globalization but not to give up on the principles of free trade. History clearly tells us that closing borders or increasing protectionism is not the way to go," Lagarde said. "We need to make globalization work for all."

Well, there is not much that is really new about this recent push-back on trade. Trade skeptics have scapegoated trade for some time, suggesting in many cases that trade agreements have cost the United States dearly in jobs of all kinds, especially manufacturing—charges that many economists dispute hotly.

This year's surge in political opposition to trade seems based entirely on the intensely political environment, although the shift in the Republican Party away from its traditional trade "plank" has been something of a shock that has rattled several candidates.

Some observers believe the current anti-trade pressure is transitory, and that it will fade once the political temperature returns closer to normal—whatever that means. Still, the current isolationism is especially dangerous for agriculture since its only growth markets now are overseas. For most producers, the 1928 experience is not likely attractive or one that should be repeated, Washington Insider believes.

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