Jim Wiesemeyer, Informa Economics, Inc, provides an update on the 2014 agriculture year and details the new Farm Bill.

1. The farm bill, economy and you
Jim Wiesemeyer
Senior VP, Farm and Trade Policy
Informa Economics, Inc.

2. What’s Wrong With Washington?

3. How Did We Get Here?

4. Where Are We Going?

5. Could Washington Be More Dysfunctional?

Major Issue Differences
 Healthcare
reform: Rollout termed a “debacle”
 Intelligence
 Executive
snafu: Sense U.S. losing clout
orders: Climate change, other issues
 Regulations:
 Farm
Growing backlog at OMB
Bill: Finally, but what a chore.
 Immigration:
Senate yes. House piecemeal.
5

6. From Dysfunctional to Functional?

Budget: Compromise found on FY 2014, 2015 budgets
 FY
2014: $1.1 trillion – Obama signed
 FY
2015: Funding agreed, but details to follow
 Debt
limit hike…Extended into early 2015
 Nov.
elections: Will put hold on many issues
 Tax
extenders, tax reform: Later, not sooner
 Ethanol
and the RFS: Changes
6

7. Advanced Economies Have Run Massive Deficits
and Pushed Debt to Unsustainable Levels
Percent (fiscal balance as percent of GDP)
Percent (Net government debt as percent of GDP)
0
90
80
-2
70
60
-4
50
40
-6
30
20
-8
10
-10
0
2008
2009
2010
2011
2012
Fiscal Deficit
2013
2014
2008
2009
2010
2011
2012
2013
Net Government Debt
2014

8. Risks to Global Economic Recovery
 Vulnerability of Eurozone banking system (stress
tests) and progress on fiscal and banking union.
 Emerging market contagion as reduced capital flows
and rising current account deficits produce sharp
currency fluctuations, reduce growth prospects and
expand political uncertainty.
 Slowing growth in China and ability to contain
shadow banking exposure.
 Geo-political risks, particularly in Middle East.
 U.S. ability to sustain growth momentum.

9. A Fragile Global Economy Will Experience
Subpar Growth With Significant Vulnerabilities
Percent change in annual world growth (purchasing-power parity rates)
Rising
Middle
Economic
Policy
Class
Turmoil Realignment
2004-08
2009-13
2014-18
Avg.=4.5% Avg.=2.9%
???
6
4
2
0
9
18
14
16
10
12
06
08
India
02
04
China
98
00
94
96
Rest of wor ld
90
92
82
84
78
80
74
76
70
72
Advanced countr ies
86
88
-2

10. US Economic Outlook
Where we’ve been and what lies ahead

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

12. U.S. Economic Prospects

13. Short Term Deficit Relief Means Long Term
Revenue and Spending Changes Are Post-2014
D eficit in billion dollars
200
Reagan
Percent of GDP
G.
Bush
Clinton
G.W. Bush
Obama
2
0
0
-200
-2
-400
-4
-2.4%
-600
-6%
-800
-6
-5.3%
Deficit as
percent
of GDP
-8
CBO new
estimates
-1000
-1200
-1400
Assumptions:
 phase-out in Iraq/ Afghanistan
-11%
 American Taxpayer Relief Act of 2012
 Sequestration (modified)
-10
-12
-14
22
24
18
20
14
16
10
12
06
08
02
04
98
00
94
96
90
92
86
88
-16
82
84
-1600
Source: Congressional Budget Office (February 2014), BEA and Treasury Department and forecast

14. Improving Global Economy, Peaking Ethanol and
Growing Grain Stocks Trigger Market Transitions
A griculture commodity index (2010=100)
150
Rising
Economic
Policy
Global
Turmoil Realignment
Middle class 2009-13
2014-18
?
100
50
Old Normal
0
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Data source: World bank
18

15. Farm Income Remained Strong in 2013
But will see major downturn in 2014
Billion dollars
150
125
100
Improving margins in the protein and dairy sectors and
large harvests limited declines in 2013. However lower
grain & oilseed prices and reduced government payments
will push incomes lower in 2014. Further pressures could
emerge in 2015
75
Net Farm Cash Income
50
25
Direct government payments*
0
79
81
83
85
87
89
91
93
95
97
99
01
* emergency payments are striped area of government payments)
15
03
05
07
09
11
13
15

17. Balance Sheet of Agriculture is Better
Prepared for Volatility and Transition
Billio d llars
n o
Billio d llars
n o
Change 1968-1978 Change 1978-1988 Change 1988-1998 Change 1998-2008
3000
Assets ... +179% Assets .. +1.4%
Debt ....... +155% Debt ...... +7.5%
Assets ... +37% Assets ... +98%
Debt ....... +24% Debt ....... +59%
600
2500
500
Change 2008-2014
Assets …. +40%
Debt ……....+21%
2000
400
1500
300
Farm assets
(left scale)
1000
200
Farm debt
(right scale)
500
100
12
14
08
10
04
06
00
02
96
98
92
94
88
90
84
86
80
82
76
78
72
74
0
68
70
0

19. Why Effective Safety Net Needed Ahead

Potential key market changes ahead: In 2015, 2016…

Higher interest rates: Federal Reserve strategy

Higher U.S. dollar: Impact on exports

Corn ethanol blend wall: Will exports take up slack?

Increased yields: ‘Normal’ weather eventually, and…

Lower prices: How low depends on carryover

Barometers: Watch farm equipment and land values
19

20. Farm Bill: Patience and Wisdom…
Developing
Countries
20

21. Farm Bill Process…Fifth calendar year
2010
Nov 2011
Rep. Peterson holds First
Hearing in House on Farm Bill
Farm Bill discussions in
“Super Committee”
2010
1
2
Jan 2013
July 2012
June 2012
April 2012
1-year extension of
2008 Farm Bill
House Ag
Committee
Markup of
2012 Farm Bill
Senate Passage
of 2012
Farm Bill
Senate Ag Committee
Markup of
2012 Farm Bill
6
4
5
May 2013
Senate Cmte Markup
of 2013 Farm Bill
House Cmte Markup
of 2013 Farm Bill
7
June 2013
Senate
Passage of
2013 Farm
Bill
8
3
July 2013
Sep 2013
Feb 2014
House Passage of
2013 Farm Bill
(“Farm Only” Farm Bill)
2008 Farm Bill
Extension Expires
Congress
approves
Obama signs
9
Today

22. 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.

23. Farm Policy
Agricultural Act of 2014
 959 pages… cost of $956 billion
 12 Titles
 $16.6 billion in budget savings over 10
years; $23 bil. incl. sequester impacts
 Commodity title spending -$14 bil./10 years
 Nutrition title spending - $8 bil./10 years
 Conservation spending - $6 bil./10 years
 Crop insurance title: +$5.7 bil./10 years

24. 10 YEAR BASELINE FOR FARM BILL TITLES
Crop Insurance, 84
Commodities, 59
Conservation, 62
10 year baseline
$973 billion
Nutrition, 764
Source: CRS using CBO estimates, Oct 10
Trade
3.4
Horticulture 1.1
Energy
0.2
Research
0.1
Misc (NAP) 1.4

25. New Farm Bill – Changes

Direct payments: Gone, but…

Transition payment: Cotton only

CCP, ACRE, SURE: Gone
25

26. FARMER CHOICE
Title I: Commodities
Title XI: Crop Insurance
Program Crops
Area
Revenue
Coverage
ARC
County
Coverage
ARC
Individual
Coverage
Price
Loss
Coverage
Crop
Insurance
Supplemental
Coverage
Option
(if not in ARC)
Upland Cotton
Stacked
Income
Protection
Plant (STAX)

27. New Farm Bill – Major Provisions

Ag Risk Coverage (ARC): Individual (65% of base) or
county (85% of base)

Price Loss Coverage (PLC): Target/reference prices

Option to reallocate base – 2009-2012

Yield update option – average of 2008-2012

STAX: Cotton program, starts with 2015 crops

Dairy: No supply management. Gross Margin
Insurance
27

28. New Farm Bill - Timing

Signup: Not before April; to last well into summer

Implementation and education: $100 mil. to FSA
$3 mil. earmark for Extension
$3 mil. earmark for Universities

Annual signup: Necessary for forms, changes, etc.

If you don’t? You’re in PLC with nothing for 2014

No major payments until Oct. 1, 2015
28

29. BASE ACRES
 Base acres tied to historical production
 Cotton base acres become ‘generic’ base acres, non -program
 Farmers allowed to update remaining program crop base
acres based on 2009-2012s acreage allocation
 ARC and PLC payments (largely) calculated on base acres and
decoupled from production
Crop
Wheat
Corn
Minor feed grains
Soybeans
Upland cotton
Rice
Peanuts
Base acres
2012
73.7
84.3
23.3
50.1
17.9
4.4
1.5
Planted acres
2009-2012 avg
55.7
90.9
12.0
76.8
11.6
3.0
1.3

30. New Farm Bill – Major Provisions

Ag Risk Coverage (ARC): Individual (65% of base) or
county (85% of base)

County: Paid when actual crop revenue is below the
ARC revenue guarantee for a crop year.

County ARC guarantee is 86 percent of county ARC benchmark
revenue.


Coverage is capped at 10 percent – coverage is between 76
percent and 86 percent of the county ARC benchmark revenue.
County ARC benchmark based on Olympic avg (removing high
and low values) of county yields and US crop year average
prices for the 5 preceding years.
30

31. Farm Bill Target Prices
Item
PLC PROVISIONS
Reference/Target Prices
Details
85% of base
Corn
$3.70/bu.
Wheat
$5.50/bu.
Soybeans
$8.40/bu.
All rice
$14/cwt.
Japonica Rice
$16.01/cwt.
Sorghum
$3.95/bu.
Barley
$4.95/bu.
Other oilseeds
$20.15/ton
Peanuts
$535/ton

32. New Farm Bill – Major Provisions

Price Loss Coverage (PLC): Target/reference prices

Paid when greater of average market-year price or loan
rate is less than the crop's reference (target) price.

Supplemental Coverage Option available, starting in 2015.
32

33. New Farm Bill – Pay caps, AGI

Pay cap: $125,000/person, $250,000 married couple

Pay cap: Combined limit for ARC, PLC and MLG/LDP

AGI limit: $900,000 three-year average

Actively engaged: “Punted” to USDA
33

34. What Farmers Are Saying
Corn and soybean growers will likely initially
focus on the county Ag Risk Coverage (ARC)
option due to an expected big payout at least for
the 2014 corn and soybean crop based on most
price projections for the 2014 crop year, and
especially compared with the triggers for the
Price Loss Coverage/target price option.

35. What Farmers Are Saying
If a farmer goes with ARC, especially in the
Midwest, they will go the county ARC route, and
not the individual option..

36. What Farmers Are Saying
Some wheat growers initially said they would
focus on the PLC over ARC, and will look with
interest in adding the Supplemental Coverage
Option (SCO) with the 2015 crop. SCO is not
available if a farmer chooses ARC.

37. What Farmers Are Saying
Corn and soybean growers said SCO was not so
attractive to them as they already are at the 80
percent or higher buy-up level via hefty crop
insurance subsidies.

38. What Farmers Are Saying
Crop insurance impacts. Farmers said they will be
assessing the impact of the new safety net
programs on their crop insurance choices for the
years ahead.

39. What Farmers Are Saying
Corn and soybean growers with an interest in the
SCO option indicated they would likely lower their
crop insurance guarantee level in exchange for
getting more subsidized SCO coverage if they
chose PLC. But that still was not likely enough for
them to shift from their initial thinking of going
the county ARC route.

40. What Farmers Are Saying
Price expectations are key. The lower the price
expectation a farmer has, the more interest they
have in the PLC option.

41. What Farmers Are Saying
One farmer noted: "It still appears that going the
PLC/SCO route gives the most flexibility and
coverage--but it depends on your price outlook
and your underlying buy up on crop insurance.
If you have 85 percent buy up already, then 86
percent SCO is almost useless. But, if you have
60 percent buy up, then SCO covers an
additional 26 percent. In addition, PLC covers
down to the loan rate -- a combination with a far
greater breadth of coverage. The optimal election
depends on the circumstances on your farm and
your own risk preference.”

42. What Farmers Are Saying
The farmer adde: "If instead you want 10 percent
protection around the average, then ARC fits the
bill. That's a luxury that folks with 85 percent buy
up can afford. But, even then, a grower should
think long term for this reason – two years ago,
the harvest price on corn was $7.50/bu. On 1,000
acres at 180 bu/ac at 85 percent coverage...that
was a liability of $1.1475 million! With prices at
$4.50/bu, that liability falls to $688,500! The
insured value dropped $460,000 or 40 percent!
That 10 percent limitation on ARC starts to look
pretty limiting."

43. New Farm Bill – Not in bill

COOL: No change

King amendment: Struck in conference

GIPSA poultry rule: No provision
43

44. Farm Bill: Livestock

Supplemental Ag Disaster Assistance Program
funded permanently

Includes a Livestock Indemnity Program for livestock
losses from adverse weather - USDA will reimburse
farm animal losses at 75% of value if disease, weather
or predators cause big herd losses. Program will
extend to all livestock

Livestock Forage Program for losses from drought or
fire
44

45. Farm Bill: Energy

Reauthorizes energy programs through FY 2018

Increases direct spending by $879 million through FY
2023

Includes: Biorefinery Assistance Program, Rural
Energy for America Program and the Biomass Crop
Assistance Program

Prohibits subsidies for ethanol blending pumps
45

46. Trade Policy Issues
• Trans-Pacific Partnership (TPP) – Obama wants
negotiations to conclude in 2013
- 12 countries: focus on Asia/Latin America
- 40% of global GDP
- 33% of world trade
• Trans-Atlantic Trade and Investment Partnership
(TTIP) – EU/US
– 50% of global GDP
– 33% of world trade
– Negotiations to continue for years
• Trade Promotion Authority (TPA)
46
– Time limited/only on TPP

47. New Farm Bill - Trade

Under Secretary for Trade and Foreign
Agricultural Affairs: Report required within
180 days, implementation one year beyond
that
– Last update was 1978 when ag trade was $29
bil. In 2012 was $136 billion.
47

49. U.S. Agriculture Export Destinations
Have Increasing Asian Flavor
Top 15 Markets 2013
1.China
2. Canada
3. Mexico
4. Japan
5. EU-27
6. South Korea
7. Hong Kong
8. Taiwan
9. Indonesia
10. Philippines
11. Turkey
12. Viet Nam
13. Egypt
14. Venezuela
15. Thailand
Total all exports
Bil. US$
23.5
21.4
17.9
12.4
11.5
5.2
3.6
3.2
2.6
2.4
2.2
2.1
1.7
1.6
1.4
140.9
Top 15 Markets 2000
Bil. US$
9.3
1.Japan
7.5
2. Canada
6.5
3. EU-27
6.3
4. Mexico
2.5
5. South Korea
2.0
6. Taiwan
1.5
7. China
1.2
8. Hong Kong
1.1
9. Egypt
0.9
10. Philippines
0.7
11. Turkey
0.7
12. Indonesia
0.7
13. Russia
14. Dominican Rep. 0.5
0.5
15. Saudi Arabia
50.8
Total all exports
Asian markets account for
43% of U.S. exports and
occupy 9 of top 15
market destinations.
China is #1 market with
Thailand, Philippines and
Viet Nam growing rapidly
Export share of
2013 U.S. production
Wheat ………. 55%
Corn ………… 12%
Soybeans ….. 46%
Broilers ……... 20%
 Beef …………. 10%
 Pork …….…… 22%
 All meat ….......18%
 Dairy (skim) …16%

50. The Next Farm Bill

Lessons from 2014 Farm Bill: Mistakes, Successes

What works, doesn’t: Budget savings – Prices - Economy

WTO challenges? If farm bill costs surge, prices decline…

Future budget deficits: Crop insurance savings

Who controls Congress, Committees: Players important

Who controls White House: Proposals and key officials

USDA: Implementation and who leads after 2016 elections
50

51. Outlook:
U.S. Agriculture
51

52. New Energy Paradigm is a Global Event
A 50 percent increase in
recoverable global gas supplies??
Implications for geopolitical
balances?
Chart source: Energy Information Administration)

53. Oil Prices: Absent Geopolitical Turmoil Oil
Prices Should Trend Lower in Coming Years
Dollars per barrel; spot price West Texas Intermediate
$140
$130
$120
$110
$100
$90
$80
$70
$60
Issues for oil:
 Risk premium for Middle East,
particularly Iran, may ease!
 U.S. dollar movements are a
factor.
 OPEC making limited adjustments
 Lower global growth expectations
is mitigating factor.
2012 avg.
$94
2013 avg.
$98
2011 avg.
$95
2014-15 avg.
$85-95
$50
$40
$30
$20
19
8
19 6
8
19 7
8
19 8
8
19 9
9
19 0
19 91
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
20 01
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
0
20 7
0
20 8
0
20 9
1
20 0
20 11
1
20 2
1
20 3
1
20 4
15
$10

54. Natural Gas Prices Will Reflect Higher
Production Potential and Pace of Conversion
Dollars per m
illion Btu (Henry Hub)
$15.00
Questions for natural gas:
 Economic recovery and shifts
in energy use will boost prices.
 New discoveries will continue
to increase future supplies!
$12.00
$9.00
2011 avg.
$4.00
2011 avg.
$4.00
2012 avg.
$2.75
$6.00
$3.00
2013-14 avg.
$3.75-4.25
19
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
0
20 7
0
20 8
0
20 9
1
20 0
1
20 1
1
20 2
1
20 3
14
20
15
$0.00

55. Relative Growth Rates and Realigning
Monetary Policies Will Impact Value of U.S.
Dollar
Indexes of m ajor cur r encies/US$ (Mar ch 1973=100)
150
140
130
From 2002 to 2011 ………....... -39 %
From August 2011 bottom
to October 2013 ..… +11 %
Dollar declined by
over 25% after
floating in 1973!
120
110
100
90
80
70
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
* Currencies weighted by relative market importance to total U.S. trade.
04
06
08
10
12
14

56. A Resource Challenged World Will Continue to
Support Commodity Markets in the Future
Mi l l i o n p eo p l e
1000
China and India will account
for 70% of increase in the
middle class from 2000-2030.
Their “ability to pay” will set
global market prices.
 Income growth
 Market access
950 million
800
600
Rest-of-World
532 mil.
(protectionism)
431 million
 Political decisions (inward?)
Rest-of-World
375 mil.
China - 361 mil.
It is not a straight line growth
path. Significant volatility will
prevail around growth path.
China - 56 mil.
India - 58 mil.
400
200
0
2000
419
million
2030

57. Crop Supplies and Demand Shifts Are
Signaling Transitions for Agricultural Sectors
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

64. Low Cattle Inventory, Record Exports and
Lower Feed Costs Spur Meat and Dairy Sectors
Feed Costs:
Export Reliance:
Low stocks
Rising price volatility
Yield/weather issues
Ethanol
Emerging markets
Disease (FMD)
U.S. $ rebound
Rising competition
Trade disputes
Export
Markets

73. Outlook for elections

2014 Congress
– -- House: GOP likely will retain control
– -- Senate: Key is candidates

2016 President
– -- Democratic candidate
– -- Republican candidate
73

74. 2014: The House
Today: 234 Republicans, 201 Democrats (Democrats
need +17 seats to win control)
Cook Outlook: Minimal Net Change

75. 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?

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

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

78. 2016: Presidential Contest Begins Early

79. 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.

80. 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?

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

82. QUESTIONS
www.iemonitor.com
82