The US government has bought itself more time to develop a new farm bill, after the previous farm policy legislation expired in September.
As part of the fiscal cliff deal reached this week, the 2008 Farm Bill was extended until September 2013.
JP Gervais, senior economist with Farm Credit Canada, says the extension gives agricultural markets some certainty heading into the 2013 planting season.
"They haven't changed anything, but it was to be expected, as it would have been surprising to see US lawmakers let producers go out in spring without knowing what the policy environment would be," he says. "This allows producers to go out and make their planting decisions knowing what they can expect for this year."
He says at some point though, US lawmakers will have to find a way to cut spending on ag programs.
"I fully expect subsidies will come down eventually, but we have to be careful what they're going to do this in return for. US producers might be willing to let go of some of the subsidies, but if they lock in the margins that we've seen in recent years, we could see future subsidies being triggered when prices come back down to historical averages," says Gervais.
The fiscal cliff legislation itself also delays spending cuts, he explains.
"Basically they've just delayed the cuts for two months. The good news is they were able to avoid falling into recession (by avoiding higher taxes for most Americans,) which is good news given our strong economic ties," he says. "The bad news is that we're going to have to do this again in two months. The spending cuts will have to be discussed again, as well as raising the debt ceiling."
Gervais says producers should expect increased price volatility as time runs out on the two-month extension.
"I fully expect we'll see quite a bit of volatility surrounding the discussions about the debt ceiling and the spending cuts," he says.
Source: Portageonline