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Can Dysfunctional Washington Ever Function? Issues impacting business of agriculture Jim Wiesemeyer Senior VP, Farm & Trade Policy Informa Economics, Inc.

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Presentation on theme: "Can Dysfunctional Washington Ever Function? Issues impacting business of agriculture Jim Wiesemeyer Senior VP, Farm & Trade Policy Informa Economics, Inc."— Presentation transcript:

1 Can Dysfunctional Washington Ever Function? Issues impacting business of agriculture Jim Wiesemeyer Senior VP, Farm & Trade Policy Informa Economics, Inc.

2 The 3 Stooges – Circa 2014

3 GOP Living Close to the Edge

4 Could Washington Be More Dysfunctional? 4 l l Obama: Second term woes u u Healthcare reform: Rollout termed a “debacle” u u Intelligence snafu: A sense that U.S. is losing clout u u Executive orders: Climate change, other issues u u Regulations: A growing backlog at OMB u u Farm Bill: Discord between farm groups, lawmakers, Obama u u Foreign policy issues: Egypt – Syria – Iran – North Korea

5 What’s Wrong With Washington?

6 How Did We Get Here?

7 Where Are We Going?

8 From Dysfunctional to Functional? 8 l l Budget: Compromise found on FY 2014, 2015 budgets u u FY 2014: $1.1 trillion – Obama signed u u FY 2015: Funding agreed, but details to follow u u Debt limit hike… until Feb. 7, 2014 u u But coming elections will put lots of issues on hold…

9 9 U.S. Economic Policy Inaction Creates Headwinds for Break-out Economic Growth 2014 elections to impact timing of some policy issues/reform Risk management and investment strategies cannot deal with policy vacuum. Companies can measure and adjust to risk based on actual policy decisions Financial sectorFinancial sector regulatory reform implementation Energy sector New energy paradigm; Fracking & horizontal drilling technology change fossil and renewable roles ImmigrationPiecemeal progress likely in 2014 Health care sectorAffordability Care Act, unintended consequences Regulatory oversightIncreasing regulation; Clean air & water, Food safety Deficit reduction Changing tax policy and entitlement programs likely on hold until 2015. Trade AgreementsTPA vote; Trans-Pacific (TPP); Trans-Atlantic (TTIP)


11 The World’s Central Banks May Have Difficulty in Coordinating Policy Actions U.S. Federal Reserve Bank Bank of Japan European Central Bank Bank of England

12 Advanced Economies Have Run Massive Deficits and Pushed Debt to Unsustainable Levels Fiscal DeficitNet Government Debt

13 13 Federal Reserve Will Continue To Promote Growth and Employment in 2014-15 Extend near-zero rate guidance to mid-2015. Tapering the $85 bil. per month in purchases. Modified 6.5% target unemployment?; inflation below 2% Federal Reserve actions:

14 Policy Realignment 2014-18 ??? Rising Middle Class 2004-08 Avg.=4.5% Economic Turmoil 2009-13 Avg.=2.9% 14 Global Economy Reflects Guarded Optimism As Growth in Advanced Economies Improves

15 China’s Economic Growth from 2000-2010 Driving Agricultural Demand 15 Magnitude of growth on a per capita basis is phenomenal

16 16 Chinese Growth Likely to Remain Subdued As Advanced Economies Remain Weak Fiscal stimulus may be needed to stay above 7%

17 Focus On U.S. Economic Prospects 2014 “Organic Growth” Less Fiscal Drag Little or No Inflation Federal Reserve Tapering Political Pitfalls, but…

18 U.S. Economic Prospects

19 Assumptions: phase-out in Iraq/ Afghanistan American Taxpayer Relief Act of 2012 Sequestration Short Term Deficit Relief Means Long Term Revenue and Spending Changes Are Post-2014 2013 Deficit estimate

20 From 2002 to 2011 ………....... -39 % From August 2011 bottom to October 2013..… +11 % Weak U.S. Dollar in 2002 to 2011 Boosted Commodities; Continued Volatility in 2014 Dollar declined by over 25% after floating in 1973!

21 21 Farm Income Remained Strong in 2013 With Better Balance Among Sectors Improving margins in the protein and dairy sectors limited income declines in 2013. Net cash income was second highest on record in 2013. However lower grain and oilseed prices could push incomes lower in 2014.

22 Balance Sheet of Agriculture is Better Prepared for Volatility and Transition Change 2008-2013 Assets …. +41% Debt ……....+19%

23 23 Pork and Broiler Sectors Riding Wave of Reduced Beef Supplies Lower Feed Costs

24 24 A Recovery in Global Grain Stocks Will Require Two Years of Large Harvests One good harvest will not remove volatility

25 +20% +5% Global Grain Markets Have Relied on Non-U.S. Production; Creating More Competition Since 2007 U.S. grain production has been near or below the 2007/08 level but may be 5% above in 2013/14. Harvested area down 6 million acres. Since 2007 non-U.S. grain production has been volatile but above the 2007/08 level every year and is 20% above in 2013/14! Harvested area up 23 million acres U.S. grain output Non-U.S. grain output

26 26 Stocks of World’s Major Soybean Exporters Have Risen Sharply

27 USDA January Supply and Demand 2011/122012/132013/14 7.24 6.22 12.50 394 14.50 88.3 7.77 6.89 14.40 468 14.90 72.5 6.60 - 7.00 4.10 – 4.70 11.75 – 13.25 415 - 445 15.30 – 16.30 72 - 77 Wheat Corn Soybeans Soymeal Rice Cotton --------------- dollars per bushel --------------- --------------- dollars per cwt --------------- --------------- cents per pound --------------- Smaller Than Expected 2013 Crops Limit Price Declines But Pressures Remain in 2014/15 --------------- dollars per short ton --------------- 2014/15

28 Significant Acreage Realignments Likely in 2014: Prices, Weather and Farm Programs

29 Data source: World bank Old Normal Transition 2004-2008 Transition Rising Global Middle class Economic Turmoil 2009-13 Policy Realignment 2014-18 Improving Global Economy, Peaking Ethanol and Growing Grain Stocks Trigger Market Transitions ?

30 Why Effective Safety Net Needed Ahead 30 l l Potential key market changes ahead: In 2015, 2016… l l Higher interest rates: Federal Reserve strategy l l Higher U.S. dollar: Impact on exports l l Corn ethanol blend wall: Will exports take up the slack? l l Increased yields: ‘Normal’ weather eventually, and… l l Lower prices: How low depends on carryover buildups l l Barometers: Watch farm equipment and land values

31 Farm Bill: Patience and Wisdom… 31 Developing Countries

32 Will We Ever Get a Farm Bill?  Farm Bill Process  2014 Farm Bill Details  Path Forward

33 Farm Bill Process…Fifth calendar year Rep. Peterson holds First Hearing in House on Farm Bill 2010 1 1-year extension of 2008 Farm Bill Jan 2013 6 Dairy and other commodities revert to 1949 Permanent Law Jan 2014 2008 Farm Bill Extension Expires Sep 2013 Farm Bill discussions in “Super Committee” Nov 2011 2 Senate Ag Committee Markup of 2012 Farm Bill April 2012 3 Senate Passage of 2012 Farm Bill June 2012 4 Senate Cmte Markup of 2013 Farm Bill House Cmte Markup of 2013 Farm Bill May 2013 7 Senate Passage of 2013 Farm Bill June 2013 8 House Passage of 2013 Farm Bill (“Farm Only” Farm Bill) July 2013 9 Today 2010 House Ag Committee Markup of 2012 Farm Bill July 2012 5

34 Farm Policy Guiding principles…  Farm policy must work for all crops and all regions of the country.  Farm policy must be able to protect against multi-year deep price declines like we saw in the late 1990s.  Do no harm to crop insurance and make improvements where possible.

35 Farm Bill Conference Provisions Item Duration Direct Payments Basis for Payments Chance to reallocate bases Cotton base acres Conservation compliance/crop insurance Expected Outcome Crops years 2014-2018 Eliminated Base acres -- Yield update option One time option – 2009-12 plantings Generic base - Annual option to plant other crops on cotton base acres and qualify for safety net provisions (ARC or PLC) for that crop, but not STAX for those acres Yes – But no AGI test, or cap on crop insurance payouts

36 Farm Bill Conference Provisions Item Revenue or Price Loss Coverage (ARC)(PLC) Marketing Loan Eligibility ARC PROVISIONS Payment band or range Payments Payment Factor Expected Outcome One time choice – ARC or PLC Yes for both ARC, PLC 86% to 76% 5-year rolling Olympic avg. revenue – Yield/Price plug 85% - County level 65% - Farm level

37 Farm Bill Conference Provisions Item PLC PROVISIONS Payment Factor Reference/Target Prices Expected Outcome 85% of base Corn$3.70/bu. Wheat $5.50/bu. Soybeans$8.40/bu. All rice$14/cwt. Japonica Rice$16.15/cwt. Sorghum $3.95/bu. Barley$4.95/bu. Other oilseeds$20.15/ton Peanuts $535/ton

38 Farm Bill Conference Provisions Item SUPPLEMENTAL COVERAGE OPTION (SCO) Availability Coverage Premium Subsidy Expected Outcome Begins with 2015 crop year ARC = No | PLC = Yes Up to 86% 65%

39 Farm Bill Conference Provisions Item STACKED INCOME PROTECTION PROGRAM – STAX Availability Coverage band Reference Prices Premium Subsidy Payment Limit Transition Payment Expected Outcome Cotton only Begins with 2015 crop year Not less than 10%, nor more than 30% of expected county revenue in increments of 5% None 80% None Yes, for 2014 crop year and 2015 for counties where STAX is unavailable

40 Farm Bill Conference Provisions Item CROP SUBSIDY PROVISIONS Payment limit Adjusted Gross Income Actively engaged Expected Outcome $105,000 *Currently 40K Direct 65K CCP $950,000 3-yr. avg. limit Focus on multiple growers who qualify for management only option. Goal: rational reform, but get at abusers

41 Farm Bill Conference Provisions Item Conservation Reserve Program (CRP) Conservation Stewardship Program (CSP) Environmental Quality Incentives Program (EQIP) Expected Outcome Acreage cap lowered to 24 mil. by FY 2018. CRP acres, 1.6 mil. ac. fewer than now. Will include carve out for grasslands as Grassland Reserve Program eliminated Max acres cut to around 10.3 mil. ac., or 2.4 mil. fewer than enrolled in recent years Continued, carve out for wildlife habitat – Appropriations bill cut

42 Farm Bill Conference Provisions Item Country-of-origin labeling Budget savings Expected Outcome Under discussion – could be voted on $25-$30 billion/10 years, inclusive of sequestration impacts

43 Farm Bill Conference Provisions Item DAIRY POLICY USDA Secretary authority Blended indemnification payment Expected Outcome No supply management language. Authority to annually adjust premium paid by plus or minus 5% Gross margin insurance indemnification would be blended payment when a producer exceeds historical (base) production – full payment on historical prod., lower payout on production exceeding base.

44 Will We Ever Get a New Farm Bill? 44 l l Process: Senate – House l l The vote: Dems push to include unemployment aid extension l l Another farm bill extension? Last resort, but…

45 Outlook for elections 45 l l 2014 Congress – – -- House: GOP likely will retain control – – -- Senate: Key is candidates l l 2016 President – – -- Democratic candidate – – -- Republican candidate

46 What Will the 2014 Election Be About? Answer: We Don’t Know Yet

47 2014: The House Today: 234 Republicans, 201 Democrats (Democrats need +17 seats to win control) Cook Outlook: Minimal Net Change

48 Terrain: House Democrats Would Need to Win GOP- Leaning Territory to Get to 218 Seats  Few Realistic Republican Targets: There are only 5 GOP members left from Democratic-leaning seats  After 2012 Gains, More Democrats Exposed: There are 18 Democrats left in GOP-leaning seats. Source: Cook Political Report.

49 2014: The Senate Today: 55 Democrats (including 2 Independents caucusing with Democrats), 45 Republicans Cook Outlook: GOP gain of 4-6 seats. Senate control in 2015 is a Toss Up.

50  Retirements in MT (Baucus), SD (Johnson), WV (Rockefeller) Democrats Must Defend 7 Seats in States Romney Won:  Incumbents: Begich (AK), Pryor (AR), Landrieu (LA), Hagan (NC) Source: Cook Political Report.

51 Kentucky: Grand-Daddy of them All  Also watch primaries in SC (Graham), GA (Open), KS (Roberts), MS (Cochran) Source: Cook Political Report.

52 2016: Presidential Contest Begins Early

53 Total Makeover: Only a New Nominee in 2016 Can Resurrect the GOP Nationally:  The “Can Wins” (Christie, Bush, Rubio)  The “Can’t Wins” (Cruz, Paul, Santorum)  The “Maybes” (Walker, Ryan, Thune) Source: Cook Political Report.

54 On Democratic Side, Will She or Won’t She?  For all of Republicans’ current problems, remember: Democrats may be lacking in “new blood” come 2016.  If not Hillary or Joe Biden, who? Cuomo, O’Malley, Warner, Hickenlooper, Gillibrand, or…Warren?

55 On Election Night 2016, Watch… 2012: Obama 19,712 Romney 19,369


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