The Real Reasons Behind CBO’s Slow-Walk Scoring of Farm Bill Proposals

FOMC decision | Cattle herd contracts | Canada port workers tentative deal | Elections

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July 24, 2023 04:43 AM

FOMC decision | Cattle herd contracts | Canada port workers tentative deal | Elections

Washington Focus

If you think Congress is not doing much the past few months, you would be correct. Little official progress has been made regarding the 12 separate appropriations bills. And monitoring the farm bill activity is like watching a video in slow motion with no clear ending to it.

Of note: This is the final week for Congress before the August recess. The Senate is in session 17 days in September and the House 12 days. From October to December, the Senate is in session 44 days while the House is in only 24 days based on the current calendar.

The latest reason for the slow crawl farm bill is how snail like the Congressional Budget Office (CBO) is taking to give Ag panel lawmakers and staffers budget scores on the not-so-many proposals coming their way.

But something is not right relative to the CBO issue. We have watched a double-digit number of farm bills in the past, and this has not been a major issue before.

What’s going on at CBO relative to new farm bill scoring? It seems that the retirement of longtime CBO veteran Jim Langley has left an experience gap. Langley was a hands-on analyst, frequently calling staffers to explain why something was scoring a certain way. This apparently is not the case now.

CBO Director Phillip Swagel in a letter to the Ag Committee leadership wrote: “For this reauthorization of the farm bill, CBO analysts have already provided more than 1,000 estimates. CBO expects to furnish hundreds more in the coming weeks and many more later in the legislative process.”

But as with so many topics of late, that is not the entire story. It seems that CBO is counting each number as an estimate, but it is the result of the same model. Example: If the Ag panel staff requested what a 10% increase in the loan rate would be for all covered commodities, CBO says the response is 21 estimates, when it is just one estimate, broken out by commodity. Not separate or individual work is needed for each commodity.

And the waiting period for some CBO forecasts is about as long as waiting for a doctor appointment of late. Sources signal Ag leaders waited over six weeks to get a response to a relatively short list of very basic Title 1 and 11 modifications. That is unheard of for committee leadership in a farm bill year. Until now.

It appears Swagel and the leadership are embarrassed by it all as they have started digging into the ag team’s work. Some new requests are about to be sent and we should soon see if the result is more expedited responses.

Another reason for why a likely short-term farm bill extension will be needed: House Republican leaders are facing challenges gathering enough votes to pass the fiscal year (FY) 2024 funding bill for USDA and the Food and Drug Administration (FDA). This is causing concern about how soon work can commence on the farm bill expected to be dealt with this fall.

The FY 2024 Agriculture spending bill had around 160 amendments filed last week ahead of this week’s discussion on the floor. And some hard-liner right-wing conservatives want to cut spending beyond what the House Appropriations Committee’s FY 2024 measures propose.

Bottom line: The House Ag spending bill will not pass the Democrat-controlled Senate. But all this will take time to play out, likely delaying a new farm bill. The House Rules Committee announced it will meet at 3 p.m. Tuesday on the military construction and veterans’ bill. The committee has not scheduled a meeting on the Agriculture and FDA bill.

USDA will be holding a session relative to revamping the Federal Milk Marketing Orders just ahead of lawmakers returning in September. The session, the first in nearly 20 years, will be in Indiana.

On the economic front, a Federal Reserve policy meeting and dozens of second-quarter earnings reports are this week’s highlights. There will also be data on consumer confidence, second-quarter gross domestic product, and U.S. inflation. Details below.

Russian President Vladimir Putin clearly wants to abort the Black Sea Grain Initiative, an agreement that allowed Ukraine to sustain relatively normal export levels of wheat, corn, and other food products for the past year. Russia withdrew from the deal on July 17, citing that international commitments to facilitate Russian grain and fertilizer exports, by the United Nations and the West, were neglected.

Will Russia return to the accord? While the agreement supports Putin’s chief international allies, China and Turkey, China is the largest customer for Ukrainian exports, while Turkey facilitates all shipments, building global reputation in the process. This is why some say China and Turkey’s reliance on the grain deal and Russia’s dependence on these nations provide compelling reasons for Russia to return to the agreement. This is despite tensions arising from accidental damage to the Chinese consulate in Odesa, Ukraine’s main port, by Russian missiles.

The future of the initiative may be discussed at an African leaders’ summit hosted by Putin, starting July 27, presenting an opportunity for positive publicity.

In response to any exit by Russia, Ukraine has expanded capacity at alternative grain terminals near the Danube River, enabling it to transmit about 80% of its prewar grain export via routes protected from Russian attack. Also, Ukraine may still export from its own Black Sea ports despite escalating tensions with Russia, provided adequate financial protection is provided by Western allies.

Russia has been practicing a blockade in the Black Sea. The Russian Defense Ministry shared that the navy carried out exercises simulating actions to shut down a portion of the Black Sea, involving missile firing at hypothetical targets. Missile attacks aimed at what are only described as “important infrastructure facilities” southwest of the port city of Odesa have increased in recent days. These actions seem to be in retaliation for an alleged Ukrainian attack on a crucial bridge connecting Russia to the Moscow-annexed Crimean Peninsula. As previously reported, Russia and Ukraine have announced that they will treat ships travelling to each other’s Black Sea ports as potential military targets, underlining the escalating tension in the region.

Despite these actions, Russia has pledged to fulfill the grain needs of African countries. Russia’s decision to attack ports and grain infrastructures is likely a move to use its exit from the Black Sea Grain Initiative as leverage to get concessions from the West, as claimed by the Institute for the Study of War.

Turkish President Erdogan said Western countries should respond to Russia’s demands to restore the Black Sea grain corridor, warning that the grain initiative’s termination would raise global food prices, causing famine and migrations.

India’s gov’t recently announced a ban on non-basmati white rice exports, raising concerns of global food inflation, amid simultaneously rising wheat and corn prices triggered by Russia’s actions targeting grain ships. This decision is aimed at reducing price and ensuring domestic availability, as rice prices in India had increased by 11.5% over the past year due to a surge in export volumes. India is a major player in rice exports, accounting for around 40% of global exports, followed by Thailand and Vietnam. Analysts warn that increased rice prices could enhance global food inflation.

The ban coincides with Russia’s targeting of Ukrainian grain silos and exit from the Black Sea Grain Initiative, causing wheat prices to surge by 11% over the past five days. Corn also experienced a comparable increase.

These sharp hikes in staple food prices are severely affecting impoverished countries that rely heavily on food imports. However, the World Food Program has been exempted from these export bans by the World Trade Organization.

Secretary of State Antony Blinken travels to Tonga, New Zealand, and Australia this week to strengthen the administration’s Indo-Pacific strategy.

On the political front, Alabama legislators have rejected the creation of a second majority-Black congressional district, potentially contravening a recent directive from the U.S. Supreme Court. Instead, the Republican-majority House and Senate approved a substantially different amendment, aiming to increase the proportion of Black voters in the state’s 2nd District from approximately 31% to 40%. This resolution was a compromise over two alternative proposals, which projected Black voter percentages of 42% and 38% respectively for the southeastern Alabama district. Governor Kay Ivey swiftly ratified the newly introduced plan.

Earlier, the Supreme Court upheld a three-judge panel’s findings, which deemed the existing state map — representing one majority-Black district amongst its seven, in a state where Black people comprise 27% of the population — as potentially infringing the federal Voting Rights Act. The decision put Alabama lawmakers on a deadline to set new district boundaries.

The 140-seat Alabama Legislature carries 33 Black lawmakers, all except one are Democrats. With the passage of this new plan, debates will quickly pivot back to federal courts where the congruency of Alabama’s congressional districts with federal regulations, and whether they offer equitable opportunities to Black voters and candidates within a political environment predominantly controlled by white Republicans, will be deliberated.

President Biden and the Democratic party are facing potential challenges from within and beyond their ranks. There is concern over the possibility of third-party presidential candidates, who are anticipated to draw votes predominantly from the Democrats if they decide to join the race.

Sen. Joe Manchin (D-W.Va.) is one presumed third-party contender, who might run a “unity ticket” in the 2024 presidential election. The No Labels group, known for their centrist views, are reportedly promoting this prospect, but as of now, Sen. Manchin has not confirmed anything. If Sen. Manchin does decide to run, it could be a substantial loss for the Democrats. Apart from potentially taking votes away from them in the presidential race, there’s also a risk that his Senate seat, which is in staunchly Republican West Virginia, would most likely be captured by a GOP candidate.

Cornel West, the renowned academic and Green Party candidate, is another potential issue for the Democrats. Even though West may not be considered a major contender in the upcoming elections, his candidacy could potentially draw votes away from the Democrats in crucial states. Harvard professor Cornel West’s Green Party candidacy for president has the White House worried he’ll pull a 2024 version of Jill Stein (who is his campaign manager).

Senate Majority Whip Dick Durbin (D-Ill.) announced Sunday night that he had tested positive for Covid-19 and will be out this week. The 78-year-old Durbin had Covid last July as well. This means that Schumer is without one Democratic vote this week.

Monday, July 24

• Young voters and rural communities. Washington Post Live holds a virtual discussion on “Reaching Young Voters and Rural Communities.”

• Extreme heat. Washington Post Live holds a virtual book discussion “The Heat Will Kill You First,” focusing on “the global toll of extreme heat.”

• North and South Korea. Center for Strategic and International Studies (CSIS) holds a discussion on “Korea: A New History of South and North.”

• Agricultural and Applied Economics Association annual meeting, through Tuesday.

Tuesday, July 25

• Climate change. U.S. Agency for International Development (USAID) holds a virtual discussion with USAID’s climate leadership team on “Climate Change.”

• Industrial policy. Peterson Institute for International Economics virtual discussion on “Industrial Policy and U.S. Foreign Policy.”

• War in Ukraine. Center for Strategic and International Studies and Chatham House discussion on “Conceptualizing Peace Plans in the Ukraine Conflict.”

• Clean tech. Information Technology and Innovation Foundation discussion on “A Realist Climate Policy: Driving Clean Tech to Price/Performance Parity,” focusing on global solutions.

• Autonomous vehicles. Advocates for Highway and Auto Safety virtual news conference on proposed autonomous vehicles legislation.

• Long Covid. Urban Institute virtual discussion on “Early Insights on Long Covid, Chronic Illness, and Economic Well-Being.”

• Tax reform. Cato Institute briefing on “Tax Expenditures and Tax Reform.”

• FTC and small businesses. Competitive Enterprise Institute briefing on “FTC: Burdening Small Business Activity.”

• IPEF. Wilson Center’s Wahba Institute for Strategic Competition discussion on “The Indo-Pacific Economic Framework.”

• 5G and China. Center for Strategic and International Studies virtual discussion on “National Security and Spectrum for 5G,” focusing on the implications of Chinese leadership in the field.

• Forest Service resources. Resources for the Future (discussion on “Changing Climate, Changing Forests: Exploring the U.S. Forest Service’s 2020 Resources Planning Act (RPA) Assessment.”

• AI regulation. Senate Judiciary Privacy, Technology, and the Law Subcommittee hearing on “Oversight of AI: Principles for Regulation.”

Wednesday, July 26

• Native American farm bill priorities. Senate Indian Affairs Committee hearing on “Native priorities for the 2023 Farm Bill Reauthorization.”

• Small businesses and rural areas. House Small Business Committee hearing on “Rural Entrepreneurship: Examining the Challenges and State of Rural Small Businesses.”

• Clean cooking. International Energy Agency virtual media briefing on a new report, “A Pathway to Clean Cooking Access for All.”

• Clean energy permitting. The Hill discussion on “Clean Energy Permitting Reform: The Path Ahead.”

• Building resilience. U.S. Chamber of Commerce Foundation 12th annual Building Resilience Conference; runs through Thursday.

• China in Afghanistan, Pakistan. Henry L. Stimson Center virtual discussion on “China in South Asia: Examining Beijing’s Strategic Role in Afghanistan and Pakistan.”

• Consumer fees. Senate Banking, Housing and Urban Affairs Financial Institutions and Consumer Protection Subcommittee hearing on “Taking Account of Fees and Tactics Impacting Americans’ Wallets.”

• Climate change and infrastructure. Senate Budget Committee hearing on “Beyond the Breaking Point: The Fiscal Consequences of Climate Change on Infrastructure.”

• Permitting on federal lands. Senate Energy and Natural Resources Committee hearing on “Opportunities for Congress to Reform the Process for Permitting Electric Transmission Lines, Pipelines, and Energy Production on Federal Lands.”

• Mineral recovery. Senate Environment and Public Works Committee hearing on “Improving Capacity for Critical Mineral Recovery through Electronic Waste Recycling and Reuse.”

• U.S./China military operations. Brookings Institution discussion on “U.S./China Proximate Military Operations in Maritime, Air, and Space Domains.”

• Homeland Security oversight. House Judiciary Committee hearing on “Oversight of the U.S. Department of Homeland Security.” Homeland Security Secretary Alejandro Mayorkas testifies.

• Resettling those impacted by Ukraine war. Commission on Security and Cooperation in Europe hearing on “Rescuing Ukrainian Children and Women from Russia’s Aggression.”

• U.S. economic security. Senate Foreign Relations Committee hearing on “U.S. Economic Security: Addressing Economic Coercion and Increasing Competitiveness.”

• Autonomous vehicles. House Energy and Commerce Innovation, Data, and Commerce Subcommittee hearing on “Self-Driving Vehicle Legislative Framework: Enhancing Safety, Improving Lives and Mobility, and Beating China.”

• U.S. energy future. Heritage Foundation discussion on “Powering the American Dream,” focusing on “securing a safe and prosperous energy future for our country and the world.”

• European challenges. Wilson Center discussion on “The Current Challenges and Future of the Organization for Security and Co-operation in Europe (OSCE).”

• House Democratic agenda. Washington Post Live virtual discussion on “The House Democratic Legislative Agenda,” focusing on the economy, abortion rights and public education.

• 2030 Census. Census Bureau virtual meeting of the National Advisory Committee to discuss strategies to improve participation in the 2030 Census.

• U.S. borders. House Homeland Security Border Security and Enforcement Subcommittee and Counterterrorism, Law Enforcement, and Intelligence Subcommittee hearing on “The Real Cost of an Open Border: How Americans are Paying the Price”

• Climate resilience. Washington Post Live virtual discussion on “Investing in Climate Resilience.”

• Student debt. American Enterprise Institute for Public Policy discussion on “The Lowering Education Costs and Debt Act.”

• Energy outlook. Politico discussion on “The New Energy Economy.”

• Rail emissions. Senate Environment and Public Works Clean Air, Climate and Nuclear Safety Subcommittee hearing on “Cleaner Trains: Opportunities for Reducing Emissions from America’s Rail Network.”

Thursday, July 27

• Hemp issues. House Oversight and Accountability Health Care and Financial Services Subcommittee hearing on “Hemp in the Modern World: The Yearslong Wait for FDA Action.”

• Chronic wasting disease. USDA’s Animal and Plant Health Inspection Service virtual meeting of the Chronic Wasting Disease Herd Certification Program.

• FY 2024 Appropriations. Senate Appropriations Committee markup of the “Defense Appropriations Act"; the “Interior, Environment, and Related Agencies Appropriations Act"; the “Labor, Health and Human Services, Education, and Related Agencies Appropriations Act"; and “Homeland Security Appropriations Act.”

• Offshore leasing program. House Natural Resources Energy and Mineral Resources Subcommittee hearing on “Safeguarding American Jobs and Economic Growth: Examining the Future of the Offshore Leasing Program.”

• Nuclear energy. U.S. Nuclear Industry Council summit on the Global Nuclear Energy Market.

• Small business investment. PunchBowl News discussion on “Investing in Small Business.”

• U.S./China Economic and Security Review Commission report. U.S./China Economic and Security Review Commission meeting to review and edit drafts of the 2023 Annual Report to Congress; runs through Friday.

• South Korea. Center for Strategic and International Studies virtual discussion on “Why Korea Matters.”

• Single-use waste. Senate Environment and Public Works Chemical Safety, Waste Management, Environmental Justice, and Regulatory Oversight Subcommittee hearing on solutions for single-use waste.

• E-bike risks. Consumer Product Safety Commission meeting on lithium-ion battery safety, with a specific focus on fires occurring in e-bikes and other micro-mobility products as well as the fire risks that may arise with the growing consumer market for other products containing such batteries.

• DEA oversight. House Judiciary Crime and Federal Government Surveillance Subcommittee hearing on “Oversight of the Drug Enforcement Administration.”

• Administration Afghanistan exit plan. House Foreign Affairs Oversight and Accountability Subcommittee hearing on “A Failure to Plan: Examining the Biden Administration’s Preparation for the Afghanistan Withdrawal.”

• Covid vaccine mandates. House Accountability and Oversight Select Coronavirus Pandemic Subcommittee hearing on “Because I Said So: Examining the Science and Impact of Covid-19 Vaccine Mandates.”

• IRA tax credits. United States Energy Association virtual discussion on “Tax Credit Monetization Under the Inflation Reduction Act.”

• Mexico natural gas. Center for Strategic and International Studies virtual discussion on “Energy, Environment, and Opportunities for Mexico’s Natural Gas Sector.”

Friday, July 28

• Report to Congress on China. Final day of the U.S./China Economic and Security Review Commission meeting to review and edit drafts of the 2023 Annual Report to Congress.

• Climate related financial risk. Treasury Department’s Financial Stability Oversight Council meeting for an update on the council’s Climate-related Financial Risk Committee and an update on the transition from the London Interbank Offered Rate (LIBOR).

Economic Reports for the Week

Investors will watch out for the U.S. Federal Reserve’s monetary policy decision at the end of a two-day meeting on Wednesday. The Federal Open Market Committee (FOMC) is likely to raise its benchmark overnight interest rate by 25 basis points to the 5.25%-5.50% range.

Monday, July 24

Chicago Fed National Activity Index: The national activity index in June is expected to rise to a near neutral plus 0.03 (zero equals historical average growth). This would be up from a lower-than-expected minus 0.15 in May that was pulled lower by weakness in production.
PMI Composite Flash: Services have held in the 50 column the last five reports with the consensus for July at 54.0 versus June’s 54.4. Manufacturing, at 46.3 in June, is expected to edge yet lower to 46.0 in July.
Earnings: Domino’s Pizza, Whirlpool, and NXP Semiconductors.

Tuesday, July 25

Case-Shiller Home Price Index: Forecasters see the adjusted 20-city monthly rate rising a sharp 0.8 percent in May versus April’s 0.9% increase. Yet the unadjusted annual rate is expected to remain in contraction at minus 2.5% versus contraction in April of minus 1.7%. Case-Shiller prices have beaten expectations the last three months in a row.
FOMC meeting begins.
The consumer confidence index is expected to rebound further in July, to a consensus 111.8 versus June’s 109.7 which was higher than expected.
Richmond Fed’s manufacturing index in July is not expected to emerge from six prior months of contraction, at a consensus minus 8 versus minus 7 in June.
Earnings: Kimberly-Clark, Microsoft, Visa, Texas Instruments, Verizon, General Electric, Alphabet, and General Motors.

Wednesday, July 26

MBA Mortgage Applications
New Home Sales: After a much higher-than-expected 763,000 annualized rate in May, new home sales in June are expected to ease back to 727,000.
FOMC announcement: After holding steady in June, the Fed is expected to raise its policy rate by 25 basis points to a range of 5.25% to 5.50% (5.375% mid-point). Inflation has been coming down but remains elevated while the jobs market continues to be strong. Fed chair press conference at 2:30 p.m. ET.
Earnings: Meta Platforms, Coca-Cola, Union Pacific, Boeing, AT&T, Chipotle, and Thermo Fisher Scientific.

Thursday, July 27

Jobless claims for the July 22 week are expected to come in at 235,000 versus 228,000 in the prior week.
Forecasters see durable goods orders rising 0.5% in July following June’s 1.8% jump. Ex-transportation orders are expected to edge 0.1% lower as are core capital goods orders, the latter climbing a sharp 0.7% in the two prior reports.
Second-quarter GDP is expected to slow to 1.5 % annualized growth versus first-quarter growth of 2.0%. Personal consumption expenditures, after the first quarter’s burst higher to plus 4.2%, are also expected to rise 1.5%.
International Trade in Goods [Advance]: The U.S. goods deficit (Census basis) is expected to hold steady at $91.8 billion in June after narrowing by $5.6 billion in May to $91.9 billion.
Wholesale inventories are expected to increase 0.1% in the advance report for June that would follow no change in May.
Pending home sales in June, which in May fell 2.7 percent, are expected to rise 0.3 percent.
Fed Balance Sheet
Money Supply
Earnings: Mastercard, AbbVie, McDonald’s, Comcast, Ford Motor, Intel, TotalEnergies SE, and Bristol Myers Squibb.

Friday, July 28

Personal income is expected to rise 0.4% in June as are consumption expenditures. These would compare with May’s 0.4% gain for income and 0.1% gain for consumption. Inflation readings for June are expected at monthly increases of 0.2% both overall and for the core (versus May’s respective increases of 0.1% and 0.3%) for annual rates of 3.0% and 4.2% (versus May’s 3.8% and 4.6%).
Employment Cost Index: After the first quarter’s 1.2% rise, forecasters see employment costs rising 1.1% in the first quarter in what would be another overheated result.
Consumer sentiment is expected to end July at 72.6, unchanged from July’s mid-month flash and more than 8 points higher from June. Year-ahead inflation expectations are expected to hold at the mid-month’s 3.4% which was 1 tenth higher than June.
Statistics Canada is expected to report the country’s economy likely expanded 0.4% in May, after remaining flat in the previous month.
Earnings: Exxon Mobil, Procter & Gamble, Chevron, and Centene.

Key USDA & international Ag & Energy Reports and Events

This week, the focus of USDA data will be on the revised forecast for food price inflation in 2023 on Tuesday. It will also mark the first release of USDA’s projections for consumer inflation in 2024. Of note, the USDA has updated its methodology for assembling these forecasts which has led their projections to be revised nearly monthly. These revisions may start to decline in frequency, as more real-time data is used to fine-tune the forecasts.

Also, USDA will be releasing on Thursday an update of farm production expenditures and lawmakers and staff will closely monitor this as they write details of the next farm bill as there has been a push to adjust some Title I safety net programs to address high input costs faced by producers.

Monday, July 24

Ag reports and events:

Export Inspections
Crop Progress
Chicken & Eggs