VOLATILE WASHINGTON: Update on Farm Bill, Trade Policy, Elections

Transcription

1 VOLATILE WASHINGTON: Update on Farm Bill, Trade Policy, Elections Jim Wiesemeyer Washington Policy Analyst, Pro Farmer

2 NEW FARM BILL

3 NEW FARM BILL When will farm bill be enacted into law? Will it provide stronger commodity title? How did House & Senate avoid poison pill amendments? Did Grassley amendment prevail in conference?

4 NEW FARM BILL Reference price escalator Special reference price for Japonica 1-time yield update opportunity beginning with 2020 crop New ARC/PLC election for 2019 and 2020 crops New ARC/PLC election opportunities for 2021, 2022, 2023

5 NEW FARM BILL Loan rate increase for rice to $7.00 8% increase Corn: $2.20, 13% increase Soybeans: $6.20, 24% increase Wheat: $3.38, up 15% Sugar: Raw cane up 1 cent to (beets 128.5% of cane cents)

6 NEW FARM BILL Expanded definition of family member to include first cousins, nieces and nephews Exclusion of marketing loan gains or loan deficiency payments from pay limits Application of the sequester to PLC & ARC before application of pay limits Marketing loan benefits exempt from sequester No change in AGI means-test level, no other changes in actively engaged requirements besides change in definition of family, and no other changes to pay limits

7 NEW FARM BILL Retention of CSP Increase in max CRP acres to 27 million ac., from 24 mil. With 2 million in grassland CRP rental rates vs prevailing rates: Up to 90% on continuous 85% on general signups

8 NEW FARM BILL Retention of in-kind U.S. food aid, with small pilot program providing cash aid Full funding for FMD and MAP Increase in individual FSA ownership and operating loans to $1,750,000 Insurable irrigation practices for rice R&D under crop insurance Dairy policy: More flexibility & improved safety net

9 QUESTIONS?

10 ELECTIONS: House Dems take House House: Big gains Dems: Needed net of 23 for control; got around 40 Big changes in House: Around 100 new Members Panel chair, ranking members Rep. Peterson won by 6 points Two sitting House Ag GOP members lost

11 ELECTIONS: Senate GOP expands Senate majority by two seats, 53:47 Senate: GOP won more seats GOP wins: Fla., Ind., Mo., N.D Dems picked up Nevada (Rosen defeated Heller) and Arizona (Sinema defeated McSally). Sen. Tester (D-Mont.) won close race vs GOP Matt Rosendale. Voting against Kavanaugh had impact on Dems Some close wins: Cruz (R-Tex.), Stabenow (D-Mich.)

12 ELECTIONS: Governors DEMS pick up 7 Governor seats, but wanted more From GOP to DEM: Wis., Kan., Maine, Nev., Ill., Mich. and N.M. GOP wins: Ohio, Fla., Iowa, Ct, S.D. Georgia: Dem Stacey Abrams lost to GOP Brian Kemp GOP had held 33 gov seats, Dems 16, 1 independent

13 HOUSE PANEL CHANGES IN 2019 Ag: Collin Peterson, Minn.: Wants farm bill in lame-duck Approps.: Nita Lowey, N.Y.: Fought repeal of WOTUS Ag Approps. Subcmte.: Sanford Bishop, Ga.: Fighting plans to relocate ERS, NIFA out of Washington Int.-Enviro Approps. Subcmte.: Betty McCollum, Minn. Voted against killing WOTUS rule Energy & Commerce: Frank Pallone, N.J.: Food labeling

14 HOUSE PANEL CHANGES (cont d) Judiciary: Jerry Nadler, N.Y.: Fought GOP immigration bill Natural Resources: Paul Grijalva, Ariz.: Defender of ESA and animal rights Rules: Jim McGovern, Mass.: Food stamps, international food aid Ways & Means: Richard Neal, Mass.: Opposed original NAFTA, would have opposed TPP Financial Services: Maxine Waters, Calif.: Revenge

15 ELECTION ANALYSIS 2/3 of voters said Trump a factor in their voting Allowed Dems to win control of the House Allowed GOP to expand their majority in Senate Trump s 11-rally, six-day campaign swing helped Senate Red states got redder; blue states got bluer Rural/Urban divide. Example in Minnesota. Year of the Woman : More than 100 women in House Republicans are more Trumpian Dems more liberal after losses by moderates With many Senate Dems considering presidential bids, center of gravity to the left

16 ISSUES FOR NEW CONGRESS Will Pelosi be House Speaker? Yes. Compromise issues: Infrastructure Immigration Health care Investigations, but Pelosi says no impeachment

17 LAME-DUCK CONGRESS AGENDA Funding gov t battle over wall funding Many nominees awaiting Senate confirmation Farm bill: Peterson does NOT want to push to 2019 Disaster aid Tax extenders, technical corrections: Biodiesel

18 IMPACT OF ELECTIONS ON 2020 Trump has a foil: House Dems/Pelosi Easier to get personnel, judiciary, SCOTUS through Senate GOP Senate more cushion but more seats up in 2020 House may flip back to GOP after 2020 Who will Dems pick for presidential candidate?

19 POST-ELECTION TRUMP STYLE (Disrupter) Proudly politically incorrect Intentionally unpredictable Media-obsessed Speaking direct to public SUBSTANCE (Doing what he promised) Remaking global trade Controlling immigration Health care prices Rebuilding infrastructure Judiciary/Supreme Court More deregulation 20

20 2018 Pivotal Year for Farm Sector Transitioning FARM INCOME From Record TRANSITIONING High Experience Biliondolars Netcashincome Netfarmincome Directpayments From 2010 to 2018 net cash income averaged nearly 60% higher than the average for the previous decade $5 billion in subsidies from Market Facilitation Program will be additional boost Direct government payments* * Source: USDA

21 IF FARM INCOME DOES NOT RECOVER, ASSET IMPACTS Biliondolarsofasets 350 Biliondolarsofnetincome ? Net farm income (right scale) Farm assets (left scale) Less leverage and dramatically lower interest rates than 1980s but

22 Farm Sector Continues to Reduce Working WORKING CAPITAL BEING REDUCED Capital on the Balance Sheet Biliondolars 20 WorkingCapital WorkingCapitaltogrosrevenue Workingcapitalratio

23 Ag Balance Sheet is Better Prepared for Volatility; Dramatically Lower Interest Rates AG BALANCE SHEET BETTER PREPARED, BUT Biliondolarsofasets Biliondolarsofdebt 30 Change Assets % Debt % Change Assets % Debt % Change Assets % Debt % Change Assets % Debt % Change Assets % Debt % Change in assets debt 1969 to % +250% 1980 to 86-28% - 7% Note: In the Federal funds rate averaged 11.5% with a peak of 15.3%. Farm assets (left scale) Farm debt (right scale) Change in assets debt 2003 to % +91% 2014 to % +18%

24 POLICY ACTION & INACTION IN VOLATILE TIMES Energy Immigration/Labor and ag sectors An * Ag issue and in crude search oil sectors of consensus battle over 2019? RFS policy * House Dems pull away from House farm bill Health care sector Issue that will not go away due to inaction Regulatory oversight WOTUS: Latest court action More deregulation ahead Federal budget issues Another tax cut? Deficits and debt. Entitlements, infrastructure. 24

25 CONGRESS ABANDONS DEFICIT CONTROL Deficitinbiliondolars Percent of GDP 20 Reagan G. H. Bush Clinton G.W. Bush Obama Trump % Deficit as percent of GDP % Source: Congressional Budget Office (April 2018), BEA and Treasury Department

26 DEBT INCREASING WITH CURRENT POLICIES Trilionsofdolars PercentofGDP Roosevelt Truman Eisenhower Kennedy Johnson Nixon / Ford Carter Reagan H.W. Bush Clinton G.W. Bush Obama Trump Debt held by public as % of GDP Debt held by public in dollars Fiscal year

27 GLOBAL DEBT PROBLEMS AHEAD DebtaspercentofGDP(2017) Household Corporate Government Japan Greece France Spain Italy Germany Euro U.S. Advanced economies Brazil China Emerging markets

28 Strong U.S. Growth and Rising Interest Rate Spreads Boost U.S. Dollar Higher STRONG U.S. GROWTH, RISING RATE SPREADS BOOST DOLLAR Indexesofmajorcurencies/US$(March1973=10) Dollar declined by over 25% after floating in 1973 U.S. savings & loan crisis Asian financial crisis US dollar index has increased by 5% since January and is now 2% above year earlier Volker fed policy From 2002 to % From Aug 2011 to October % * Currencies weighted by relative market importance to total U.S. trade.

29 CURRENCIES OFFSETING U.S. TARIFFS Indexesofcurencies/US$withJanuary19= S.Korea China Taiwan Euro Japan BritishPound

30 TRADE POLICY: TRUMP STRATEGY No major election-year impact WSJ/NBC poll: On trade issues, GOP preferred over DEM by a 17- point margin, up from 8-points in Aug. survey Trump and his trade team: Big differences Lighthizer, Navarro, Ross Mnuchin, Kudlow, Perdue Patience? Trump likes fast action, except for China

31 TRADE POLICY: TRUMP STRATEGY Maximize leverage and then cut a deal Strategy: Threaten to bolt, then negotiate Strategy: Use threat of auto sanctions as leverage Japan: 1.7 mil. car sales in U.S. annually 20% tariff = $8.5 bil in. manufacturing costs Strategy: Ease some pain via tariff aid payments

32 TRADE POLICY: IMPACTS Important trade policy facts & figures For each new job created by metals tariffs, 16 lost Manufacturers, farmers losing vital foreign markets U.S. pork exports to China have collapsed 36 mil. U.S. jobs depend on trade Where does tariff money go? Long-term implications

33 TRADE POLICY: UPDATES Some talks completed Mexico: Election timeline still important Canada: Compromises Dairy was key for U.S., but USMCA: Will Congress approve in 2019? Metals tariffs: When will they be lifted? KORUS: No major changes EU: Talks begin big impact if regulations are synced Japan: Talks Jan. 2019; Japan wants to freeze ag access China: Later rather than sooner

34 U.S.-CHINA SITUATION U.S.-CHINA SITUATION Talks resume, but... U.S., China talking Trump/Xi in Argentina * Truce pending talks * 90-day timeframe beginning Dec. 1 * Will China purchase U.S. farm, energy products? Will take time for some resolutions, others will linger

35 RFS REFORM x Year-round E15 Court challenges ahead RINs reform RFS waivers BIG issue, unresolved What happens to RFS in 2022?

36 OTHER TOPICS Key issues impacting business of ag How can farmers, industry weather market conditions? How is Sec. Perdue perceived in Washington? Federal Reserve rate increases ahead U.S. economy

37 QUESTIONS?

38 Contact Info Jim Wiesemeyer Washington Policy Analyst, Pro Farmer