How will Prices and Politics Affect 2012 Farm Bill Talks?

$3.0 Billion Ag Cuts Recommended

A recent report by the Deficit Reduction Commission, challenged to reduce the U.S. deficit by $3.8 trillion over 10 years, includes recommendations to reduce farm spending by $3.0 billion a year. Not counting federally subsidized crop insurance programs, government payments to farmers and landowners have been running at about $12 billion a year during the last four years. Reducing payments by $3.0 billion a year would significantly reduce the government financed market safety net.

Current high commodity prices will stimulate increased agricultural production in the U.S. and the world, especially in countries in the southern hemisphere such as Brazil and Argentina. Markets react to changing supply and demand conditions and current high prices are vulnerable to sizeable downward adjustments. A significant reduction in farm program payments would require the farm sector to rely on other market-based tools to manage financial risk.

Government Funding Cuts

With a current U.S. national debt of about $13.7 trillion, the Deficit Reduction Commission recommended plan would hold down the growth of the federal debt by roughly $3.8 trillion by 2020, or about half of the $7.7 trillion by which the debt would have otherwise grown by that year. While the Deficit Reduction Commission report is just a recommendation, their discussion of budget cuts that includes social security benefits and defense spending will not leave agricultural untouched.

 

Jose G. Penais Texas AgriLife Professor and Extension Economist-Management in Uvalde.