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Can Dysfunctional Washington Ever Function? · 2018. 1. 30. · Program (CSP) Environmental Quality...
Transcript of Can Dysfunctional Washington Ever Function? · 2018. 1. 30. · Program (CSP) Environmental Quality...
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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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The 3 Stooges – Circa 2014
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GOP Living Close to the Edge
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Could Washington Be More Dysfunctional?
4
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
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What’s Wrong With Washington?
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How Did We Get Here?
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Where Are We Going?
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From Dysfunctional to Functional?
8
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… until Feb. 7, 2014
But elections will put many issues on hold…
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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 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
Deficit
reduction Changing tax policy and entitlement programs
likely on hold until 2015.
Trade Agreements TPA vote; Trans-Pacific (TPP); Trans-Atlantic (TTIP)
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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
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Advanced Economies Have Run Massive Deficits and Pushed Debt to Unsustainable Levels
2008 2009 2010 2011 2012 2013 2014
-10
-8
-6
-4
-2
0
Percent (fiscal balance as percent of GDP)
2008 2009 2010 2011 2012 2013 2014
0
10
20
30
40
50
60
70
80
90
Percent (Net government debt as percent of GDP)
Fiscal Deficit Net Government Debt
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Policy Realignment
2014-18 ???
Rising Middle Class
2004-08 Avg.=4.5%
Economic Turmoil 2009-13
Avg.=2.9%
13
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
-2
0
2
4
6
Percent change in annual world growth (purchasing-power parity rates)
Advanced countr ies Rest of world China India
Global Economy Reflects Guarded Optimism As Growth in Advanced Economies Improves
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China’s Economic Growth from 2000-2010
Driving Agricultural Demand
14
Magnitude of growth on a per capita basis is phenomenal
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15
9.8
11.3
12.7
14.2
9.69.2
10.4
9.3
7.8 7.67.3
93-02 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0.0
2.5
5.0
7.5
10.0
12.5
15.0
Percent growth rate per year
Chinese Growth Likely to Remain Subdued As Advanced Economies Remain Weak
Fiscal stimulus may be needed to stay
above 7%
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Focus On
U.S. Economic Prospects
• 2014 “Organic Growth” Less Fiscal Drag
• Little or No Inflation
• Federal Reserve Tapering
• Political Pitfalls, but…
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U.S. Economic Prospects
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81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23
-1600
-1400
-1200
-1000
-800
-600
-400
-200
0
200
Deficit in billion dollars
-16
-14
-12
-10
-8
-6
-4
-2
0
2
-6%-5.3%
-2.4%
Reagan ClintonG. Bush
G.W. Bush
Source: Congressional Budget Office (September, 2013), BEA and Treasury Department and forecast
Deficit aspercentof GDP
Percent of GDP
Obama
-11%
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
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* Currencies weighted by relative market importance to total U.S. trade.
70
80
90
100
110
120
130
140
150
Indexes of major currencies/US$ (March 1973=100)
80 82 84 86 88 90 92 94 96 98 00 02 04 06 0874 76 78 10 12 14
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!
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20
Farm Income Remained Strong in 2013 With Better Balance Among Sectors
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
0
25
50
75
100
125
150
Billion dollars
Net Farm Cash Income
Direct government payments*
* emergency payments are striped area of government payments)
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.
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Balance Sheet of Agriculture is Better Prepared for Volatility and Transition
68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
0
500
1000
1500
2000
2500
3000
Billion dollars
0
100
200
300
400
500
600
Billion dollars
Change 1968-1978
Assets ... +179%
Debt ....... +155%
Change 1978-1988
Assets .. +1.4%
Debt ...... +7.5%
Change 1988-1998
Assets ... +37%
Debt ....... +24%
Farm assets(left scale)
Farm debt(right scale)
Change 1998-2008
Assets ... +98%
Debt ....... +59%
Change 2008-2013
Assets …. +41%
Debt ……....+19%
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22
Pork and Broiler Sectors Riding Wave of Reduced Beef Supplies Lower Feed Costs
74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
0
5
10
15
20
25
30
35
40
Billion pounds
Beef
Pork
Broilers -0.75 -4 to -6%
- 0.25 +1 to +3%
Change in 2013 2014
+2.0 +3 to +5%
Beef
Pork
Broilers
2010 2011 2012 2013 2014
1.3% 0.7% 0.2% 0.3 0 to +1
Percent change in total meat output
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70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
0
100
200
300
400
500
Million metric tons of wheat & coarse grains
0
8
16
24
32
40
Stocks-to-use percentage
World stocks Stock/use
A Recovery in Global Grain Stocks Will Require Two Years of Large Harvests
One good harvest will not remove volatility
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24
90 92 94 96 98 00 02 04 06 08 10 12
0
10
20
30
40
50
60
70
Million metric tons of soybeans
World
Major Exporters
China
(Major exporters are Argentina, Brazil, Paraguay and U.S.)
Stocks of World’s Major Soybean Exporters Have Risen Sharply
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USDA January Supply and Demand 2011/12 2012/13 2013/14
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
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Significant Acreage Realignments Likely in 2014: Prices, Weather and Farm Programs
Corn
Soybeans
Wheat
Upland Cotton
7 other crops*
Hay harvested
All crops acreage
CRP
Double cropping
Prevented planting
Total acreage
-4 to -2
+4 to +6
+1 to +2
0 to +1
0 to +1
+1 to +2
+4 to +5
-1 to -2
0 to +1
-2 to -3
-2 to -1
Change13 to 14
----------------- million acres -----------------
* Barley, oats, sorghum, rice, sunflowers, peanuts and canola
88.2
77.4
53.6
10.8
19.6
59.9
314.8
31.3
2.8
6.9
350.1
2010
91.9
75.0
54.4
14.4
17.1
57.6
314.8
31.1
5.0
11.0
349.5
2011
97.2
77.2
55.7
12.3
20.6
56.3
324.3
29.5
5.9
1.3
349.2
2012
92.0
82.0
57.5
11.0
20.0
57.0
324.5
25.3
6.0
2.0
345.8
2014
95.4
76.5
56.5
10.3
20.3
56.6
320.0
26.9
6.0
4.0
345.0
2013
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Data source: World bank
0
50
100
150
Agriculture commodity index (2010=100)
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 18
Old Normal
Rising Global
Middle class
Economic Turmoil 2009-13
Policy Realignment
2014-18
Improving Global Economy, Peaking Ethanol and Growing Grain Stocks Trigger Market Transitions
?
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Why Effective Safety Net Needed Ahead
28
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
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Farm Bill: Patience and Wisdom…
29
Developing
Countries
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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
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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.
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Farm Bill Conference Provisions
Item
Country-of-origin labeling
Budget savings
USDA Undersecretary of Trade
Expected Outcome
Under discussion – could be voted on
$25-$30 billion/10 years, inclusive of sequestration impacts
Needed trade policy reform
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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
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Farm Bill Conference Provisions
Item
Revenue or Price Loss Coverage (ARC) (PLC)
Marketing Loan Eligibility
Supplemental Coverage Option - SCO
Expected Outcome
One time choice – ARC or PLC
Yes for both ARC, PLC
Begins with 2015 crop year ARC = No | PLC = Yes
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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
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Outlook for elections
36
2014 Congress
– -- House: GOP likely will retain control
– -- Senate: Key is candidates
2016 President
– -- Democratic candidate
– -- Republican candidate
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What Will the 2014 Election Be About?
Answer: We Don’t Know Yet
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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.
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2014: The House
Today: 234 Republicans, 201 Democrats (Democrats
need +17 seats to win control)
Cook Outlook: Minimal Net Change
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2014: The Senate
Today: 55 Democrats (including 2 Independents
caucusing with Democrats), 45 Republicans
Cook Outlook: GOP gain of 4-6 seats.
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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.
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Kentucky: Grand-Daddy of them All
Also watch primaries in SC
(Graham), GA (Open), KS
(Roberts), MS (Cochran)
Source: Cook Political Report.
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2016: Presidential Contest Begins Early
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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.
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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?
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On Election Night 2016, Watch…
2012: Obama 19,712 Romney 19,369
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QUESTIONS
www.iemonitor.com
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