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How Obama’s 2015 Budget Proposal Will Affect Commodities

Earlier this week, President Obama unveiled his budget proposal for the year beginning October 1. The proposed 2015 budget totals $3.9 trillion, including certain tax increases, as well as budget cuts and increases across nearly all departments. A closer look at the breakdown of Obama’s budget reveals several key factors commodity traders and investors should be aware of — particularly for the energy and agriculture industries.

In the President’s message, Obama stated “We also know that one of the biggest factors in bringing more jobs back is our commitment to American energy… The Budget advances this strategy by ensuring the safe and responsible production of natural gas and cleaner electricity generation from fossil fuels.” In regard to agriculture, however, the President’s outlined budget is significantly smaller than last year.

Energy Spending to Increase 2.6%

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The proposed budget will provide $27.9 billion in discretionary funds for the Department of Energy, marking a 2.6% increase from last year. The funds are aimed to “position the United States to compete as a world leader in clean energy and advanced manufacturing. Some of the budget highlights include:

$4.2 billion dedicated to the Department’s discretionary applied energy programs to drive energy sector innovation.
$5 billion provided to the Office of Science to conduct basic research and invest in research infrastructure.
$2.3 billion for the Office of Energy and Renewable Energy to reduce US dependence on fossil fuels.
$11.7 billion for nuclear security.
The budget also outlined subsidy reforms:

Eliminate $4 billion in tax subsidies to oil, gas, and other fossil fuel producers.
Outside the Department of Energy, Obama’s budget also outlined a 3.7% reduction in funding for the Environment Protection Agency. The agency’s proposed budget will total $7.9 billion; the spending plan focuses on reducing carbon output from vehicles and power plants.

Agriculture Spending to Shrink 7.9%

Obama’s proposed budget provides $23.7 billion in discretionary resources for the Department of Agriculture — a 7.9% decrease from last year. The spending plan includes increased investments in rural communities, renewable energy, and agricultural research. The budget includes:

$58 million for a new economic development grant program aimed to help small and emerging private businesses in rural communities.
$5 billion in loans to rural electric cooperatives and utilities to support transition to clean-energy generation.
$325 million for the Agriculture and Food Research Initiative competitive research program.
$50 million to enhance research related to pollinator health.
$20 million to build a new biosafety research laboratory in Athens, Georgia.
The proposed agriculture reforms include:

$14 billion in savings from reducing crop insurance subsidies for farmers and insurance companies over the next 10 years.
Together with the other changes proposed in Obama’s budget, the President expects his blueprint to steer the country to shrink the deficit to 1.6% of the economy by 2024.

Editor’s note: This article by Daniela Pylypczak was originally published on Commodity HQ.

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