Washington Insider-- Thursday

Debt Limit Issue Again on the Horizon

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

GAO Embarking On Extensive RFS Exam

The Environmental Protection Agency (EPA) this week published a notice in the Federal Register that they are turning over information to the Government Accountability Office (GAO) on the Renewable Fuel Standard, including data that could be considered confidential business information (CBI) relative to small refinery exemptions (SREs).

EPA said they will disclose to GAO "all documents, information, and data related to all small refinery exemption petitions received by EPA from the start of the RFS program through the present."

EPA said GAO will either return the information to EPA or destroy it when their study is done, and they noted there are rules preventing "any further disclosure" of such information.

That suggests GAO is embarking on a major exam of the RFS and SREs in particular, most likely coming at the request of a lawmaker or lawmakers. It is not clear when the study will be completed, but this could be a key report on what has been a dicey subject in the biofuels arena.

US Ag Export Value Shot Higher in March Along With Imports

The value of U.S. ag exports rebounded sharply higher in March to $15.34 billion after slipping to $13.87 billion in February. But the big rise in exports was nearly equaled by sharp boost in the level of imports which hit a record $14.56 billion in March after having fallen to $11.86 billion in February.

The result was a trade surplus of $774 million, a sharp decline from the $2 billion surplus in February and marked the first surplus under $2 billion for Fiscal Year (FY) 2021.

The export mark also means U.S. ag exports have been valued at $15 billion or more five out of the six months so far in FY 2021.

This brings cumulative FY 2021 ag exports to $92.42 billion against imports that total $76.87 billion, for a cumulative surplus of $15.5 billion.

USDA in February forecast U.S. ag exports at a record $157 billion against imports at $137.5 billion which would also be a record. USDA will update its forecast for U.S. ag exports May 26.

Historical patterns are for U.S. ag import values to increase in the next few months while export values have typically softened.

Washington Insider: Debt Limit Issue Again on the Horizon

The issue of the nation's debt limit is set to return as something that Congress will have to deal with in coming months. The New York Times reports that the issue is again coming to light after the 2019 action by a then-bipartisan Congress to suspend the debt limit until July 31.

The suspension was aimed at putting the budget issue off until after the elections and keeping it out of politics. But now the matter is fast approaching as lawmakers will have to address.

While the U.S. Treasury can take what are labeled "extraordinary measures" to avoid hitting the debt limit, the agency is warning that they are not sure this time around how long they can use those tools before the debt limit is hit.

"In light of the substantial COVID-related uncertainty about receipts and outlays in the coming months, it is very difficult to predict how long extraordinary measures might last," the agency said in a section of its so-called quarterly refunding statement on Wednesday, according to Bloomberg. "Treasury is evaluating a range of potential scenarios, including some in which extraordinary measures could be exhausted much more quickly than in prior debt limit episodes."

Some of those extraordinary measures can suspending sales of state and local government series Treasury securities and suspending reinvestment of the Exchange Stabilization Fund, the Times said. Treasury can also redeem existing investments of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund and suspend reinvestment of the Government Securities Investment Fund.

In a briefing, a Treasury official would not commit to how long those tools could be tapped, again pointing to the uncertainty over the COVID situation.

"If Congress has not acted by July 31, Treasury, as it has in the past, may take certain extraordinary measures to continue to finance the government on a temporary basis," said Brian Smith, Treasury's deputy assistant secretary for federal finance. "In light of the substantial COVID-related uncertainty about receipts and outlays in the coming months, it is very difficult to predict how long extraordinary measures might last."

While Treasury could also prioritize what debts they will pay and which ones they will not, Smith simply said, "Congress needs to raise or suspend the debt limit, that's the way to resolve this issue."

With Democrats in charge of the House and Senate, they may opt to use budget reconciliation to push through an increase in the debt ceiling. But even then, they will have to count on all 50 Senate Democrats and nearly every House Democrat to even use that option.

If that approach is not used, the Times warned that Republicans could use it as leverage for spending cuts as they did several years ago.

While not an immediate issue, the matter will become one later this year. And with the level of debt piling up, the interest payments on that debt will be very important. The current level of interest rates has reduced the cost to service the debt. But if conditions which the market fear relative to inflation manifest themselves near the time the debt ceiling issue has to be addressed, that will add to the cost servicing the debt.

Plus, fears the U.S. could default on its obligations could send shockwaves through financial markets, another unwelcome development.

So, we will see. But producers will need to follow this issue closely as the deadline for action approaches. It could easily become a more-protracted fight than most would like. And a fight on that front could spill into several areas of the government, Washington Insider believes.

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