Transcript Farm Bill

Volatility to Continue
Jim Wiesemeyer
Senior VP, Farm & Trade Policy
Informa Economics

European crisis: Progress, but…
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China and India: Slower growth
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U.S.: Fed weighing action
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U.S. debt/ceiling: Could go into early ‘13
Drought Will Push Commodity Prices
and Input Costs Higher
Index (1990-92=100)
225
Sector is operating at higher price and cost
levels with greater volatility …… more
working capital to play, less leverage
permitted and more emphasis on welldefined risk management policies
200
175
Prices paid*
Prices received: crops
150
125
100
Prices received: livestock
9
19 3
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
0
20 3
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
19
19
92
75
*Prices paid commodities & services, interest, taxes and wage rates
Farm Income : Agriculture Continues Strong
Performance Despite Drought
Billion dollars
120
100
80
60
Net cash income in agriculture reached nearly
$110 billion in 2011. However a below normal
harvest and weak global economy signal declines
in 2012. But insurance payments will limit
decline. Any transition to a new plateau is on
hold…
Net Farm Cash Income
40
20
Direct government payments*
0
75
77
79
81
83
85
87
89
91
93
95
97
* emergency payments are striped area of government payments)
99
01
03
05
07
09
11
Farm Debt Leveraging Has Not Fueled
Land Price Increases; Values to Moderate
Billion dollars
Billion dollars
3000
600
Change 1970-1980 Change 1980-1990 Change 1990-2000 Change 2000-2010 Change 2010-2012
Assets ... +259%
Assets ... -16%
Assets ... +43%
Assets ... +82%
Assets ... +13%
Debt ....... +235%
Debt ....... -19%
Debt ....... +25%
Debt ....... +51%
Debt ....... +3%
2500
Farm assets
(left scale)
?
500
2000
400
1500
300
1000
200
500
Farm debt
(right scale)
0
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
20
0
100
Black Swan Events Are Amplified
Protein and dairy
sectors must take a
cautious approach
Weak U.S. and global
economy combined
with continued low
grain inventories
make impacts of
black swan events
severe
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Farm bill?
Debt ceiling hike?
Alternative to sequestration/ATB cuts
Tax extenders
Taxes
2001 and 2003 tax cuts
 Payroll tax holiday
 Estate tax
 AMT fix
 Doc fix

Fiscal Cliff Would Remove $528 Billion
from U.S. Economy in Fiscal 2013
Expiration of: certain income tax cuts, reduced
rates for estate and gift tax provisions, and the
indexing of the AMT for inflation.
Expiration of the payroll tax holiday.
Defense cuts mandated by sequester
Non-defense spending cuts mandated by
sequester
Expiration of emergency unemployment
insurance benefits.
Cost of the expiring tax
provisions and spending
cuts for fiscal 2013.
(billion dollars)
Doc fix
Expiring tax extenders
Sources; Congressional Budget
Office, Bipartisan Policy Center
and Eurasia Group
$528 billion = 3.3% of U.S. economy in 2013

White House: Vilsack briefs Obama, Cabinet

Congress: Livestock disaster programs, but
blame it on 2008 Farm Bill…
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Farm Bill: Obama, Dems use drought to urge
House farm bill vote, but House GOP balks
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Food price impact: Delayed, but…
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Food prices: Higher ahead
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2012: 2.5 to 3.5% increase
2013: 3% to 4% rise
Food prices in 2007 rose 4.0% from 2006
Food prices in 2008 rose 5.5% from 2007
 But focus in 2007 and 2008 was more on world prices,
especially wheat, rice and vegoil
Uncertainties Over U.S. Crops
Dominate Market Developments
Major Concern About New Crop Prospects
U.S. Corn Yield Will Be Well Below
Trend for Third Consecutive Year
Trend 163.9 bushels per acre
June USDA proj. at 166.0
July USDA proj. at 146.0
Aug. USDA est.: 123.4
Bushels per acre for corn
170
160
1990-2010 trend yield
150
140
130
120
actual corn yield
110
100
90
80
70
60
70
73
76
79
82
85
88
91
Crop year
94
97
00
03
06
09
12
U.S. Corn Yield Will Be Well Below
Trend for Third Consecutive Year
Trend 163.9 bushels per acre
June USDA proj. at 166.0
July USDA proj. at 146.0
Aug. USDA est.: 123.4
Bushels per acre for corn
170
160
1990-2010 trend yield
150
140
130
120
actual corn yield
110
100
90
80
70
60
70
73
76
79
82
85
88
91
Crop year
94
97
00
03
06
09
12
World Soybean Production on Roller
Coaster Ride But Critical in 2012/13
Million metric tons
+13%
World
250
-11%
200
150
100
50
United States
10
12
06
08
02
04
98
00
94
96
90
92
82
84
78
80
74
76
70
72
86
88
Brazil and Argentina
0
World Soybean Production on Roller
Coaster Ride But Critical in 2012/13
Million metric tons
+13%
World
250
-11%
200
150
100
50
United States
10
12
06
08
02
04
98
00
94
96
90
92
82
84
78
80
74
76
70
72
86
88
Brazil and Argentina
0
World Wheat Feeding Will Remain Strong
Million metric tons of coarse grains
150
+32 mmt
125
100
75
50
25
12
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
74
72
70
0
Crop
insurance: Huge payouts ahead
Gov’t statistics tested: Crop, stocks reports
USDA World Board: Demand cuts
Energy policy: RFS mandate|Biodiesel
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EPA could take action itself, but will not
Unlikely – Admin. in election ‘lock down’
Livestock coalition files waiver request
More governors will likely file requests
Vilsack and EPA comment on issue
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MF Global: Was not the only one…
PFGBest/Peregrine: “It was easy”
CFTC: Gensler admits faults; 2013 CEA gets
reauthorized
NFA: Self policing under focus – push for
direct access to funds to ensure customer
accounts are segregated
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U.S. and Russia’s WTO accession
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TPP
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New farm bill
WTO challenges?
 New USDA Undersecretary for trade?
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Senate passes: Vote of 64-35
House Ag passes: Vote of 35-11
Now what? House GOP leaders cautious
Timing: Lame-duck session best chance
Biggest issue – Food Stamp funding cuts
Senate: $4 billion
 House: $16.1 billion
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Focus: Revenue assurance, SCO, crop
insurance, food stamps, target prices
Key: Move from base to planted acres
Direct payments: Eliminated
Pay cap changes won by Sen. Grassley
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AGI at $750,000 in Senate; House at $950,000
Pay cap $50,000 Senate; House $125,000
Actively engaged definition change in Senate, not House
Dairy: Supply management
Estimated total spending: $970 billion over 10 years
Elections:
The Factors That Matter Most
Watch with a Critical Eye – Not Every Campaign
Twist and Turn Is Important
But… The LIKEABILITY Factor…
I
II
III
Campaign
Story
Economic
Outlook
Swing
States
Which Is It?:
Economic Trajectory:
Swing-State Analysis:
• Retrospective
referendum?
• Historical growth rate
• Swing-state economic
fortunes
(or)
• Prospective choice?
Source: National Journal Member Research, 2012.
• Future economic
expectations
• Swing-state demographics
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Key states… Obama immigration change key
Nevada (Hispanics 17% of voters)
 Iowa
 Ohio
 Virginia
 Colorado (Hispanics 13% of voters)
 New Hampshire
 North Carolina
 Wisconsin
 Florida (Hispanics 19% of voters)
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Biggest of battleground states – ‘Big 6’
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Big Six: Fla. | Ohio | Va. | N.H. | Iowa | Colo.
Big Three: Romney must win Fla. | Ohio | Va.
Obama can win with one victory in Fla., Ohio or Va., and
one of the other three
Caveat: Major economic or other surprise … such as
Romney possibly taking Wisconsin
Impact of GOP VP pick: Rep. Paul Ryan of Wisconsin
Bottom Line: Who Will Win?
Predictions
President Obama Wins
Re-Election
Republicans Retain Control
of the House
Senate in 50/50 Split???
???
55%, but…
75%
Presidential
election key