This is a guest post from our macro contrarian reporter covering the Beltway, Shawn Sanders.

We are a mere 19 months away from an election that will no doubt be two parts WrestleMania and one part Stalingrad.  Among many things that means is that the window for passing legislation before complete paralysis sets in is closing faster than many realize.

Politicians will need to have at least a couple accomplishments they can point to when appealing to voters, if only as fodder to toss in between accusations the opposition is destroying America.

There is little stomach right now for pitched ideological battles, as evidenced by the overwhelmingly status-quo budget deal announced after enough posturing to make a peacock blush.

In this environment legislation can move forward but it requires sacrificing some “sacred cows” to grease the wheels.  Quotes are used because it refers to issues that rally the base but are actually inconsequential to politicians espousing them.

To wit: Republicans have been selling out their conservative base on the issue of abortion for decades, and Democrats have a longstanding record of enabling wars and corporate rapaciousness.

Agricultural subsidies are emerging as the “sacred cow” that will be sacrificed at the altar of an increased debt ceiling.  Politically they have become rather indefensible as “conservatives condemn them as intrusions into the free market, liberals denounce them for encouraging environmentally harmful over-farming, and both sides see them as a form of corporate welfare.”

The question of what will be cut by how much and the consequences are a topic for another day.  Few details have been released either through official or leaked sources.  So for the time being a quick look at the recent history behind agricultural subsidies offers the best insight into what changes may come.

Commodity Support Programs as they are known are under the purview of a New Deal era agency called the Commodity Credit Corporation (CCC).   Funds for these programs are appropriated as a part of a national Farm Bill which is renewed every five years.

The current Farm Bill expires in 2012.  Per the 2012 political calculations mentioned above, it is exceedingly unlikely any major changes could be made to the Farm Bill when it comes up next year, yet another reason why this is being taken up now.

Many of the contentious issues being fought over in the 2012 Farm Bill can be traced to the 2002 Farm Bill.

To say the bill was full of lard would be an insult to all manner of lipids.  Spending on  was ramped up by more than 50%, from $61 billion to $98 billion over the five year period.   Ultimately due to rising commodity prices only $73 billion was spent from 2002-2007, nevertheless conservatives were very upset and vied to correct the profligacy when the 2002 Farm Bill expired.

Politicians from both parties came out swinging in the opening negotiations for what should have been the 2007 Farm Bill.  Intransigence on negotiating positions led to a series of extensions until a final compromise was reached in May 2008.

Interestingly President Bush fought hard in the media for paring back some generosity in his 2002 bill, to the point of actually vetoing the 2008 bill.  President Bush had absolutely nothing to gain by fighting his party on this, interestingly then, most indications are he genuinely was for reforming the Farm Bill.

Congress passed the bill with uber-majorities in one of only four veto overrides during the Bush presidency.  The Congressional Research Service would later note “the enacted 2008 farm bill continues and/or modifies most existing farm and commodity programs, and also creates new programs and provisions. “

Commodity Support Programs were actually pared back from $73 to $42 billion, but this was largely due to the continued bull market in commodities.

Conservation programs were increased by $8 billion and were the favored vehicle to make up for cuts in subsidies.  Obviously the programs are more complicated than this, but large landowners can often get federal conservation money if they promise to keep certain tracts of land undeveloped.

In Washington then as now, there is no disagreement too big that can’t be solved with money for nothing.

Paul Ryan’s 2012 budget (released early April) called reforming farm programs a “major proposal” to move toward “ending corporate welfare.”   Other bullet points under that heading included privatizing Fannie and Freddie and ending Wall Street bailouts.  No doubt there will be pressure to check at least one of those off.

When asked on May 4th what might be part of an agreement to raise the debt limit, Ryan noted it would only include discretionary spending cuts and singled out farm aid.

On May 16th the Treasury will officially declare the debt ceiling breached.   As we approach and go past that date, pay attention to how the farm aid issue is portrayed in the media.  Both sides ideologically have very little ground to stand on to support agricultural subsidies.

If the issue turns into an epic battleground it would be a classic example of political posturing where kicking up dirt is sold as moving heaven and earth.

The opinions expressed in this document are solely the views of Shawn Sanders individually, and do not reflect the views or opinions of any company Shawn Sanders may be affiliated with or be employed by.  The information contained in this document does not contain legal, financial, or investment advice and should not be relied upon for any such purpose.

1 – http://www.nytimes.com/2011/05/07/us/politics/07farm.html

2 – http://en.wikipedia.org/wiki/Commodity_Credit_Corporation

3 – http://www.nationalaglawcenter.org/assets/crs/RS22131.pdf

4 – http://assets.opencrs.com/rpts/RS21233_20020607.pdf

5 – http://assets.opencrs.com/rpts/RS22694_20070717.pdf

6 – http://assets.opencrs.com/rpts/RL34696_20081003.pdf

7 – http://budget.house.gov/UploadedFiles/PathToProsperityFY2012.pdf

8 – http://www.businessweek.com/news/2011-05-05/ryan-says-politics-prevents-grand-slam-agreement-on-u-s-debt.html

9 – http://www.reuters.com/article/2011/05/12/usa-debt-limit-idUSN0926640220110512