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March 21, 2013
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Automatic budget cuts creating more uncertainty for ag; Experts: agencies need more flexibility in implementing the cuts

Already facing drought and having no new farm bill to serve as a road map, those in the agriculture industry are dealing with yet another source of uncertainty these days; automatic federal spending cuts.

The impacts of the cuts on ag could be widespread and significant if put in place without changes, according to federal officials, lawmakers, ag economists and others.

However, no one knows the exact details of those impacts, or knows how much flexibility federal agencies will have in implementing them during the next several months.

“This uncertainty isn’t good for anybody — not for producers, or the markets,” said Jordan Dux, national affairs coordinator with the Nebraska Farm Bureau, referring to the potential impacts of the cuts, which are the result of lawmakers’ inability to come to budget agreements by March 1.

Dux said just a couple weeks ago, the markets responded to reports of the cuts, with cattle prices dropping by about $9 per head that day.

“Just the threat of what might happen is already showing up in the markets,” Dux said.

The sequester cuts will take place from April to the end of September, and are expected to force meat-inspection furloughs at packing plants, such as JBS USA and Tyson Foods facilities in Nebraska, cut spending for ag research and farm-service programs, and, eventually, they could trickle down to impact something as large as the overall economy and international trade, Dux and other ag experts say.

Most recently, the U.S. Department of Agriculture’s statistical arm announced it won’t issue some agricultural reports this year because of automatic cuts — alarming some in the ag industry, who fear the information void could wreak havoc with commodity prices.

Dux and others know there’s a need to trim away at the U.S. debt, but believe there are smarter ways of doing it.

They’re hoping lawmakers give federal agencies additional flexibility in how the cuts are made throughout the year.

“We need to change our approach here. We need to go at this with a scalpel, instead of a meat clever,” Dux said.

A report from the USDA — an agency that’s already had its budget cut by $3 billion since 2010 — estimates the automatic cuts will reduce its budget by about another $2 billion during the next six months.

According to the report, the cuts include about $60 million less for agricultural research done by universities and private companies, which producers have long depended on to help maximize resources and their production.

The USDA report also said the automatic cuts, as they are, would curtail conservation assistance for about 11,000 landowners across the country, as well as cause reductions in assistance for pest and disease prevention and to local USDA agency offices that oversee the implementation of farm programs.

The Farm Service Agency will have $34 million to $35 million less for farm loans, USDA officials have estimated.

As far as the dollar amount, the estimated $2 billion in automatic federal cuts is relatively in line with the $23 billion in cuts over 10 years the Senate was looking for in the farm bill version it approved last summer, and less than the $35 billion in cuts over the next decade the U.S. House Committee on Agriculture approved last year.

But both of those farm bill versions — neither of which made it to a final vote — included many cuts that had been supported by various sectors of the ag industry, such as eliminating direct payments and other outdated programs, and replacing them with ones more in tune with an ag industry changed in the past five years.

What’s attracted much of the attention in recent weeks is how the automatic budget cuts will force furloughs for federal meat inspectors, which the USDA report said could result in as many as 15 days of lost production for meatpacking plants through Sept. 30 — costing about $10 billion in total losses and about $400 million in wages.

Meat- and poultry-packing plants — of which there are about 6,300 in the U.S. — cannot operate without federal inspections.

Critics say the warnings of shutdowns are exaggerated and their likelihood slim.

U.S. Agriculture Secretary Tom Vilsack said last week that the furloughs for government meat inspectors are still months away, and disruptions related to spending cuts would be staggered if the government pulled back on inspections.

He said recently each meat inspector will likely be furloughed 11 or 12 days, instead of 15.

However, Vilsack added that the process will be complicated because of negotiations with labor unions that represent the meat inspectors.

Those in the meat-packing industry who are awaiting the impacts are already dealing with uncertainty aplenty.

The nation’s tight supply of cattle — currently the smallest U.S. herd in 61 years — means less cattle are going to slaughter at packing plants.

Many packing plants are now at over capacity — production isn’t keeping up with operating costs.

Earlier this year, the situation led to the decision to close a Cargill plant in Texas.

Meat-processing plants across the board have been struggling.

This month, Midwest Meat Packing of Gibbon, Neb., a turkey-processing facility, announced it would go into Chapter 7 involuntary bankruptcy and has ceased operations.

Depending on the extent of the slowdown at packing plants caused by the federal cuts, producers and feedlots who sell livestock to the packing plants could be affected, being forced to keep animals longer than expected, driving up feed expenses and cutting into their profits.

Already, the drought has increased competition and the prices feeder are paying for cattle, and the drought also has increased feed prices.

In the end, the USDA report says the automatic federal budget bring limited meat and poultry supplies and potentially higher prices for consumers.

“My own sense as an economist is that, in addition to immediate impacts associated with federal programs benefitting the state, the main effects of the sequester will show up over time in the form of lower economic growth and continued high unemployment in the U.S.,” said Wes Peterson, an agricultural economist for the University of Nebraska. “Nebraska has been sheltered from the recession because of the centrality of agriculture and high commodity prices, so the impact of slower growth and higher unemployment may not be as severe as it will be in states with economies that are more fragile.” ❖

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The Fence Post Updated Oct 16, 2013 02:42PM Published Mar 28, 2013 09:16AM Copyright 2013 The Fence Post. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.