Can Dysfunctional Washington Ever Function?
Issues impacting business of agriculture
Jim Wiesemeyer
Senior VP, Farm & Trad...
The 3 Stooges – Circa 2014
GOP Living Close to the Edge
Could Washington Be More Dysfunctional?


Obama: Second term woes


Healthcare reform: Rollout termed a “debacle”



In...
What’s Wrong With Washington?
How Did We Get Here?
Where Are We Going?
From Dysfunctional to Functional?


Budget: Compromise found on FY 2014, 2015 budgets
 FY

2014: $1.1 trillion – Obama s...
U.S. Economic Policy Inaction Creates
Headwinds for Break-out Economic Growth
2014 elections to impact timing of some poli...
The World’s Central Banks May Have
Difficulty in Coordinating Policy Actions

Bank of
England

Bank of
Japan

U.S. Federal...
Advanced Economies Have Run Massive Deficits
and Pushed Debt to Unsustainable Levels
Percent (fiscal balance as percent of...
Global Economy Reflects Guarded Optimism As
Growth in Advanced Economies Improves
Percen t ch an g e in an n u al w o rld ...
China‟s Economic Growth from 2000-2010
Driving Agricultural Demand

Magnitude of growth on a per capita basis is phenomena...
Chinese Growth Likely to Remain Subdued
As Advanced Economies Remain Weak
Percen t g ro w th rate p er year
15.0

14. 2

F...
Focus On
U.S. Economic Prospects
• 2014 “Organic Growth” Less Fiscal Drag
• Little or No Inflation

• Federal Reserve Tape...
U.S. Economic Prospects
Short Term Deficit Relief Means Long Term
Revenue and Spending Changes Are Post-2014
Defici t in b i ll io n d o l lars

2...
Weak U.S. Dollar in 2002 to 2011 Boosted
Commodities; Continued Volatility in 2014
Inde x e s of ma jor c urre nc ie s /U ...
Farm Income Remained Strong in 2013
With Better Balance Among Sectors
Billion dollars
150
125
100

Improving margins in th...
Balance Sheet of Agriculture is Better
Prepared for Volatility and Transition
Billion dollars

Billion dollars

Change 196...
Pork and Broiler Sectors Riding Wave of
Reduced Beef Supplies Lower Feed Costs
Billion pounds
40

Broilers
Beef

30

-0.75...
A Recovery in Global Grain Stocks Will
Require Two Years of Large Harvests
Mil l io n metri c to n s o f w h eat & co arse...
Stocks of World’s Major Soybean
Exporters Have Risen Sharply
Mil l io n metri c to n s o f so yb ean s
70
60

World
Major ...
Smaller Than Expected 2013 Crops Limit Price
Declines But Pressures Remain in 2014/15
USDA January Supply and Demand
2011/...
Significant Acreage Realignments Likely in
2014: Prices, Weather and Farm Programs
2010

2011

2012

2013

2014

Change
13...
Improving Global Economy, Peaking Ethanol and
Growing Grain Stocks Trigger Market Transitions
Ag ri cu l tu re co mmo d i ...
Why Effective Safety Net Needed Ahead


Potential key market changes ahead: In 2015, 2016…



Higher interest rates: Fed...
Farm Bill: Patience and Wisdom…

Developing
Countries

29
Farm Bill Process…Fifth calendar year
2010

Nov 2011

Rep. Peterson holds First
Hearing in House on Farm Bill

Farm Bill d...
Farm Bill Conference Provisions
Item

Expected Outcome

DAIRY POLICY

No supply management language.

USDA Secretary autho...
Farm Bill Conference Provisions
Item

Expected Outcome

Country-of-origin labeling

Under discussion – could be
voted on

...
Farm Bill Conference Provisions
Item

Expected Outcome

Duration

Crops years 2014-2018

Direct Payments

Eliminated

Basi...
Farm Bill Conference Provisions
Item

Expected Outcome

Revenue or Price Loss Coverage
(ARC)

One time choice – ARC or PLC...
Farm Bill Conference Provisions
Item

Expected Outcome

Conservation Reserve Program
(CRP)

Acreage cap lowered to 24 mil....
Outlook for elections


2014 Congress
– -- House: GOP likely will retain control
– -- Senate: Key is candidates



2016 ...
What Will the 2014 Election Be About?

Answer: We Don’t Know Yet
Terrain: House Democrats Would Need to Win GOPLeaning Territory to Get to 218 Seats

 Few Realistic Republican Targets: T...
2014: The House

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

Today: 55 Democrats (including 2 Independents
caucusing with Democrats), 45 Republicans
Cook Outlook: GO...
Democrats Must Defend 7 Seats
in States Romney Won:

 Retirements in MT (Baucus), SD (Johnson), WV (Rockefeller)
 Incumb...
Kentucky: Grand-Daddy of them All

 Also watch primaries in SC
(Graham), GA (Open), KS
(Roberts), MS (Cochran)
Source: Co...
2016: Presidential Contest Begins Early
Total Makeover: Only a New Nominee in 2016
Can Resurrect the GOP Nationally:
 The “Can Wins”
(Christie, Bush, Rubio)

 T...
On Democratic Side, Will She or Won’t She?

 For all of Republicans’ current problems, remember:
Democrats may be lacking...
On Election Night 2016, Watch…

2012: Obama 19,712 Romney 19,369
QUESTIONS
www.iemonitor.com

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Jim Wiesemeyer - Washington Update: Will Dysfunctional Washington Ever Function
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Washington Update: Will Dysfunctional Washington Ever Function - Jim Wiesemeyer, Informa Economics, from the 2014 Iowa Pork Congress, January 22-23, Des Moines, IA, USA.

More presentations at http://www.swinecast.com/2014-iowa-pork-congress

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  • JAN 2014
  • JAN 2014
  • OCT 2013
  • JAN 2014
  • JAN 2014
  • DEC 2013
  • JAN 2014
  • JAN 2014
  • JAN 2014
  • JAN 2014
  • JAN 2014
  • DEC 2013 (pink sheet) rebased
  • Jim Wiesemeyer - Washington Update: Will Dysfunctional Washington Ever Function

    1. 1. Can Dysfunctional Washington Ever Function? Issues impacting business of agriculture Jim Wiesemeyer Senior VP, Farm & Trade Policy Informa Economics, Inc.
    2. 2. The 3 Stooges – Circa 2014
    3. 3. GOP Living Close to the Edge
    4. 4. Could Washington Be More Dysfunctional?  Obama: Second term woes  Healthcare reform: Rollout termed a “debacle”  Intelligence snafu: A sense that U.S. is losing clout  Executive orders: Climate change, other issues  Regulations: A growing backlog at OMB  Farm Bill: Discord between farm groups, lawmakers, Obama  Foreign policy issues: Egypt – Syria – Iran – North Korea 4
    5. 5. What’s Wrong With Washington?
    6. 6. How Did We Get Here?
    7. 7. Where Are We Going?
    8. 8. 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  But limit hike… until Feb. 7, 2014 elections will put many issues on hold… 8
    9. 9. U.S. Economic Policy Inaction Creates Headwinds for Break-out Economic Growth 2014 elections to impact timing of some policy issues/reform Financial sector Financial sector regulatory reform implementation Energy sector New energy paradigm; Fracking & horizontal drilling technology change fossil and renewable roles Immigration Piecemeal progress likely in 2014 Health care sector Affordability Care Act, unintended consequences Regulatory oversight Increasing regulation; Clean air & water, Food safety Trade Agreements TPA vote; Trans-Pacific (TPP); Trans-Atlantic (TTIP) Deficit reduction Changing tax policy and entitlement programs likely on hold until 2015. Risk management and investment strategies cannot deal with policy vacuum. Companies can measure and adjust to risk based on actual policy decisions 9
    10. 10. The World’s Central Banks May Have Difficulty in Coordinating Policy Actions Bank of England Bank of Japan U.S. Federal Reserve Bank European Central Bank
    11. 11. 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
    12. 12. Global Economy Reflects Guarded Optimism As Growth in Advanced Economies Improves Percen t ch an g e in an n u al w o rld g ro w th (p u rch asin g -p o w er p arity rates) Rising Middle Economic Policy Class Turmoil Realignment 2004-08 2009-13 2014-18 Avg.=4.5% Avg.=2.9% ??? 6 4 2 0 13 18 14 16 10 12 06 08 India 02 04 C hina 98 00 94 96 R e s t of w orld 86 88 82 84 78 80 74 76 70 72 A dv a nc e d c ount rie s 90 92 -2
    13. 13. China‟s Economic Growth from 2000-2010 Driving Agricultural Demand Magnitude of growth on a per capita basis is phenomenal 14
    14. 14. Chinese Growth Likely to Remain Subdued As Advanced Economies Remain Weak Percen t g ro w th rate p er year 15.0 14. 2 Fiscal stimulus may be needed to stay above 7% 12. 7 12.5 11. 3 10.0 10. 4 9. 8 9. 6 9. 3 9. 2 7. 8 7. 6 2012 2013 7.5 7. 3 5.0 2.5 0.0 93-02 2005 2006 2007 15 2008 2009 2010 2011 2014
    15. 15. Focus On U.S. Economic Prospects • 2014 “Organic Growth” Less Fiscal Drag • Little or No Inflation • Federal Reserve Tapering • Political Pitfalls, but…
    16. 16. U.S. Economic Prospects
    17. 17. Short Term Deficit Relief Means Long Term Revenue and Spending Changes Are Post-2014 Defici t in b i ll io n d o l lars 200 Reagan G. Bush Percent of GDP 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 -1000 -1200 -1400 Assumptions:  phase-out in Iraq/ Afghanistan  American Taxpayer Relief Act of 2012  Sequestration 2013 Deficit estimate -11% -10 -12 -14 21 23 17 19 13 15 09 11 05 07 01 03 97 99 93 95 89 91 85 87 -16 81 83 -1600 Source: Congressional Budget Office (September, 2013), BEA and Treasury Department and forecast
    18. 18. Weak U.S. Dollar in 2002 to 2011 Boosted Commodities; Continued Volatility in 2014 Inde x e s of ma jor c urre nc ie s /U S$ ( Ma rc h 1 9 7 3 =1 0 0 ) 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
    19. 19. Farm Income Remained Strong in 2013 With Better Balance Among Sectors Billion dollars 150 125 100 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. 75 Net Farm Cash Income 50 25 Direct government payments* 0 78 80 82 84 86 88 90 92 94 96 98 00 * emergency payments are striped area of government payments) 20 02 04 06 08 10 12 14
    20. 20. Balance Sheet of Agriculture is Better Prepared for Volatility and Transition Billion dollars Billion dollars 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 2008-2013 Assets …. +41% Debt ……....+19% 2000 400 1500 300 Farm assets (left scale) 1000 200 Farm debt (right scale) 500 100 14 12 10 08 06 04 02 00 98 96 94 92 90 88 86 84 82 80 78 76 74 72 70 0 68 0
    21. 21. Pork and Broiler Sectors Riding Wave of Reduced Beef Supplies Lower Feed Costs Billion pounds 40 Broilers Beef 30 -0.75 -4 to -6% Pork 35 Change in 2013 2014 +2.0 +3 to +5% - 0.25 +1 to +3% Broilers 25 Beef 20 Pork 15 10 Percent change in total meat output 2010 2011 2012 2013 2014 1.3% 0.7% 0.2% 0.3 0 to +1 5 22 14 12 10 08 06 04 02 00 98 96 94 92 90 88 86 84 82 80 78 76 74 0
    22. 22. A Recovery in Global Grain Stocks Will Require Two Years of Large Harvests Mil l io n metri c to n s o f w h eat & co arse g rai n s Sto cks-to -u se p ercen tag e 500 One good harvest will not remove volatility 40 400 32 300 24 200 16 100 8 W o rl d sto cks Sto ck/ u se 23 14 10 12 06 08 02 04 98 00 94 96 90 92 86 88 82 84 78 80 74 76 0 70 72 0
    23. 23. Stocks of World’s Major Soybean Exporters Have Risen Sharply Mil l io n metri c to n s o f so yb ean s 70 60 World Major Exporters China 50 40 30 20 10 0 90 92 94 96 98 00 02 04 (Major exporters are Argentina, Brazil, Paraguay and U.S.) 24 06 08 10 12
    24. 24. Smaller Than Expected 2013 Crops Limit Price Declines But Pressures Remain in 2014/15 USDA January Supply and Demand 2011/12 2012/13 2013/14 2014/15 --------------- dollars per bushel --------------- Wheat Corn Soybeans 7.24 6.22 12.50 7.77 6.89 14.40 6.60 - 7.00 4.10 – 4.70 11.75 – 13.25 --------------- dollars per short ton --------------- Soymeal 394 468 415 - 445 --------------- dollars per cwt --------------- Rice 14.50 14.90 15.30 – 16.30 --------------- cents per pound --------------- Cotton 88.3 72.5 72 - 77
    25. 25. Significant Acreage Realignments Likely in 2014: Prices, Weather and Farm Programs 2010 2011 2012 2013 2014 Change 13 to 14 ----------------- million acres ----------------- Corn 88.2 91.9 97.2 95.4 92.0 -4 to -2 Soybeans 77.4 75.0 77.2 76.5 82.0 +4 to +6 Wheat 53.6 54.4 55.7 56.5 57.5 +1 to +2 Upland Cotton 10.8 14.4 12.3 10.3 11.0 0 to +1 7 other crops* 19.6 17.1 20.6 20.3 20.0 0 to +1 Hay harvested 59.9 57.6 56.3 56.6 57.0 +1 to +2 314.8 324.3 320.0 324.5 +4 to +5 31.3 31.1 29.5 26.9 25.3 -1 to -2 Double cropping 2.8 5.0 5.9 6.0 6.0 0 to +1 Prevented planting 6.9 11.0 1.3 4.0 2.0 -2 to -3 All crops acreage 314.8 CRP Total acreage 350.1 349.5 349.2 345.0 345.8 * Barley, oats, sorghum, rice, sunflowers, peanuts and canola -2 to -1
    26. 26. Improving Global Economy, Peaking Ethanol and Growing Grain Stocks Trigger Market Transitions Ag ri cu l tu re co mmo d i ty i n d ex (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
    27. 27. 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 the slack?  Increased yields: „Normal‟ weather eventually, and…  Lower prices: How low depends on carryover buildups  Barometers: Watch farm equipment and land values 28
    28. 28. Farm Bill: Patience and Wisdom… Developing Countries 29
    29. 29. 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 Jan 2014 House Passage of 2013 Farm Bill (“Farm Only” Farm Bill) 2008 Farm Bill Extension Expires Dairy and other commodities revert to 1949 Permanent Law 9 Today
    30. 30. Farm Bill Conference Provisions Item Expected Outcome DAIRY POLICY No supply management language. USDA Secretary authority Authority to annually adjust premium paid by plus or minus 5% Blended indemnification payment 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.
    31. 31. Farm Bill Conference Provisions Item Expected Outcome Country-of-origin labeling Under discussion – could be voted on Budget savings $25-$30 billion/10 years, inclusive of sequestration impacts USDA Undersecretary of Trade Needed trade policy reform
    32. 32. Farm Bill Conference Provisions Item Expected Outcome Duration Crops years 2014-2018 Direct Payments Eliminated Basis for Payments Base acres -- Yield update option Chance to reallocate bases One time option – 2009-12 plantings Cotton base acres 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 Conservation compliance/crop insurance Yes – But no AGI test, or cap on crop insurance payouts
    33. 33. Farm Bill Conference Provisions Item Expected Outcome Revenue or Price Loss Coverage (ARC) One time choice – ARC or PLC (PLC) Marketing Loan Eligibility Yes for both ARC, PLC Supplemental Coverage Option SCO Begins with 2015 crop year ARC = No | PLC = Yes
    34. 34. Farm Bill Conference Provisions Item Expected Outcome Conservation Reserve Program (CRP) 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 Conservation Stewardship Program (CSP) Max acres cut to around 10.3 mil. ac., or 2.4 mil. fewer than enrolled in recent years Environmental Quality Incentives Program (EQIP) Continued, carve out for wildlife habitat – Appropriations bill cut
    35. 35. Outlook for elections  2014 Congress – -- House: GOP likely will retain control – -- Senate: Key is candidates  2016 President – -- Democratic candidate – -- Republican candidate 36
    36. 36. What Will the 2014 Election Be About? Answer: We Don’t Know Yet
    37. 37. Terrain: House Democrats Would Need to Win GOPLeaning 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.
    38. 38. 2014: The House Today: 234 Republicans, 201 Democrats (Democrats need +17 seats to win control) Cook Outlook: Minimal Net Change
    39. 39. 2014: The Senate Today: 55 Democrats (including 2 Independents caucusing with Democrats), 45 Republicans Cook Outlook: GOP gain of 4-6 seats.
    40. 40. 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.
    41. 41. Kentucky: Grand-Daddy of them All  Also watch primaries in SC (Graham), GA (Open), KS (Roberts), MS (Cochran) Source: Cook Political Report.
    42. 42. 2016: Presidential Contest Begins Early
    43. 43. 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
    44. 44. 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?
    45. 45. On Election Night 2016, Watch… 2012: Obama 19,712 Romney 19,369
    46. 46. QUESTIONS www.iemonitor.com 47
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