Trumping the Economy and Agricultural Policy Outlook Update

“Trumping” the Economy and Agricultural Policy Outlook Update February 2017 Larry D. Sanders

The bottom line… • Dec 2016: – General economy in pretty good shape – Ag economy at crossroads facing crisis or resurgence • 2017: – Tug/pull between Trump and Fed – Regulation relaxation – Trade, foreign economies, energy markets & weather uncertain 2

Leaving 2016 behind • • Consumer spending and Gross Domestic Product are at record levels, while Federal government spending is down – GDP growth rate last quarter 3. 2% – GDP debt to GDP remains high (104%) Wage and salary growth have recovered from the 2008 meltdown (4. 3%) Federal deficit has declined Inflation rate remains relatively low (1. 6%; food price deflation) • • • $ has strengthened Unemployment is down and more jobs are being created U rate 4. 6% Interest rates low (0. 5%) Commodity prices are down after record years 3

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The General Economy in 2017: Tug/pull between new President, Federal Reserve, Congress & key trading partners • Fiscal stimulus: increase inflation • Monetary policy: limit inflation & slow growth in GDP • Deficit likely to increase • Foreign capital attracted to US investments • $ strengthens • Trade deficit increases • Unemployment may increase • Standard of living likely declines • Farm asset values likely decline and farm income will shrink • Reduced staffing in federal farm offices such as FSA and NRCS • Suggests longer waits/more difficulty to get assistance, benefits 8

PAYMENTS (1991 -2016 F) $ Billion D SE ) I EV 016 R 13 (1 $66. 9 b. $54 b $12. 9 b. 9 Note: OK producers received $1 bil. in direct govt. payments in 2014.

PRIVATE FUNDING (AS MUCH AS $3. 6 TRILLION NEEDED BY 2020) Public Infrastructure systems Funding gap (needs-est. funds) $billion 2013 Surface transportation 846 Water/wastewater/waterw 100 ays/ports Electricity 107 Airports 39 Dams/levees 89 Hazardous/solid waste 46 Parks/rec 104 Rail 11 schools 271 TOTAL 1, 611 http: //www. infrastructurereportcard. org/a/#p/grade-sheet/americas-infrastructure-investment-needs 10

https: //www. washingtonpost. com/graphics/national/maps-of-americaninfrastrucure/? hpid=hp_hp-top-table-main_gfx-infrastructure 320 pm%3 Ahomepage%2 Fstory 11

Lower Bulk Export Prices and Greater Export Competition 152. 3 134 Records 114. 2 112. 5 Exports 43 Imports Trade Surplus Updated by Sanders

http: //www. fas. usda. gov/data/trade-agreements-createopportunities-us-agriculture 13

2016: GOP Red; Dem Blue https: //www. washingtonpost. com/2016 -election-results/us-presidential-race/? hpid=hp_hpbignews 4_map-desktoppromo%3 Ahomepage%2 Fstory Cartogram: map re-scaled according to vote within counties https: //www. washingtonpost. com/graphics/politics/2016 -election/how-election-maps-lie/ 14

Trump Policies Related to Ag & Rural America? 1. Limit immigration 2. Kill TPP; revisit all in-force trade agreements, esp. NAFTA 3. Kill/revisit climate change agreements 4. Expand infrastructure programs (roads/bridges) 5. Reduce regulations 6. Eliminate or reduce EPA 7. Separation of farm programs and food/nutrition programs in next farm bill 8. With exception of Defense and ICE, general reduction of government—it will be smaller 15

The next farm bill… 2018… 2019… 2020…? ? ? • 2014 farm bill was a 5 -yr bill expected to last thru 2018 • Discussions have begun • Risk management continues to be the framework--crop insurance focus • Maintain omnibus concept or split off food programs? • Specialty crops and conservation as compromise issues? • The “Team” that will write/move the farm bill SENATE HOUSE Pat Roberts (R-KS) Michael Conaway (R-TX) Debbie Stabenow (D-MI) Collin Peterson (D-MN) 16

Oklahoma “A rose by any other name would smell as sweet” -- William Shakespeare, Romeo and Juliet

THE BUDGET

Source: Oklahoma Policy Institute, “Oklahoma State Appropriations, FY 2007 to FY 2017, ” http: //okpolicy. org/resources/online-budgetguide/expenditures/state-government-expenditures/appropriations-history/, Accessed 2/1/17 @ 3 pm Total Appropriations

Miller, Ken. 2017. “Oklahoma Economic Report: News and Analysis of Oklahoma’s Economy. ” Accessed online https: //www. ok. gov/treasurer/documents/OER_1 -31 -17. pdf on February 2, 2017 @ 1: 30 pm

Miller, Ken. 2017. “Oklahoma Economic Report: News and Analysis of Oklahoma’s Economy. ” Accessed online https: //www. ok. gov/treasurer/documents/OER_1 -31 -17. pdf on February 2, 2017 @ 1: 30 pm

Source: American Society of Civil Engineers, “ 2013 Report Card for America’s Infrastrucutre: Oklahoma. ” http: //www. infrastructurereportcard. org/oklahoma-overview/, Accessed 2/3/17 @ 11: 29 am http: //www. infrastructurereportcard. org/oklahoma-overview/

ECONOMICS OF BUDGET DECLINE

Source: Wilkerson, 2017

Unemployment Rates, December 2016 Source: Wilkerson, 2017

Unemployment Rates, November 2016 Source: Wilkerson, 2017

Source: Wilkerson, 2017

Payroll Employment by Industry Source: Wilkerson, 2017

Selected Housing Indicators *Percent change year-over-year. Source: Wilkerson, 2017

Exports Source: Wilkerson, 2017

Manufacturing Activity Plant Level Indicators Composite Index Production Volume of shipments Volume of new orders Backlog of orders Number of employees Average employee workweek Prices received for finished product Prices paid for raw materials Capital expenditures New orders for exports Supplier delivery time Inventories: Materials Inventories: Finished goods Diffusion Index^ 7 11 7 20 5 3 -4 13 31 -2 -1 5 -3 -3 Source: Federal Reserve Bank of Kansas City,

WHAT MIGHT THE FUTURE HOLD?

Source: Wilkerson, 2017

$53. 55/ barrel 2/2/17 Source: Energy Information Agency, “Daily Prices. ” Accessed online http: //www. eia. gov on 2/3/17 @ 11: 45 am Oil (WTI-Cushing) Prices

$3. 12/ MMBtu 2/1/17 Source: Energy Information Agency, “Daily Prices. ” Accessed online http: //www. eia. gov on 2/3/17 @ 11: 45 am Natural Gas (Henry Hub) Prices

Source: Wilkerson, 2017

Source: Energy Information Agency, “West Texas Intermediate (WTI) Crude Oil Price Probabilities. ” Accessed on http: //www. eia. gov/forecasts/steo/images/Probability_WTI. png 2/1/17 @ 10: 15 pm.

Source: Energy Information Agency, “Henry Hub Natural Gas Price Probabilities. ” Accessed on http: //www. eia. gov/forecasts/steo/images/Probability_HH. png 2/1/17 @ 10: 15 pm

Sources • Wilkerson, Chad. 2017. “The Oklahoma Economic Databook: A summary of regional economic indicators for the state of Oklahoma. ” Accessed online https: //www. kansascityfed. org/~/media/files/publicat/research/indicator sdata/regionaldatabook/2017 -01 -24 -okrdb. pdf on 1/30/17 @ 11: 24 am • Federal Reserve Bank of Kansas City. 2017. “Tenth District Manufacturing Activity Continued to Expand Moderately. ” Accessed online https: //www. kansascityfed. org/~/media/files/publicat/research/indicator sdata/mfg/2017 jan 26 mfg. pdf? la=en on 1/30/17 @ 11: 15 am