Farm Legislation In An Election Year

2016 Annual CornVention

Fargo, North Dakota

February 3, 2016

James Callan

Founder/CEO of James Callan Associates LLC

www.jamescallanassociates.com

Policy Developments Last Year

• Section 179 – benefits small and medium-sized businesses and farms • Waters of the U.S. (WOTUS) rule from EPA: one of the worst examples of

“overreach” – Bob Stallman, outgoing Farm Bureau President, Jan. 10, 2016. Court battle so far protects farmers

• GMO labeling – battle continues, delay is in Senate • RFS – EPA made changes from initial proposal, still well below statute • RFS future challenges – oil industry, EPA, court battles

What Is In Store for This Year?

• Mostly oversight, including of EPA. Administrator Gina McCarthy is appearing

before the House Agriculture Committee. • Climate change, endangered species, pollinators; child nutrition; trade agreements

• GMO Labeling – can the industry coalition stay together?

• Vermont GMO law already is driving national policy, i.e., Campbell’s

• Biotech approvals – will China provide a more transparent process?

The Current Farm Bill: A Recap

• Major crops covered

• Interacts with crop insurance making it the focal point of a revised safety

net • “Plus up” crop insurance funding ($5.7 billion) over 10 years

The Farm Bill In Budget Context

Total budget authority for all mandatory farm bill programs under current law is $995 billion during FY2014-FY2023. Nutrition programs make up 80 percent. Total savings: $16.6 billion. Of this amount, budget authority for farm safety net programs is $134 billion over the 10-year period: -- $44 billion for Title I (including commodity programs) and $90 billion for Title XI (crop insurance). Disaster programs do not have budget baseline funding. Source: Congressional Budget Office

The Farm Bill Process – What Happens Next?

Farm Bill Reauthorized Every Five Years – Major Drivers of Reform: • Desire to change farm programs, maintain/improve safety net

• Budget realities – much tighter Federal budget situation; make

programs compliant with WTO rules, U.S. farmers in global context • New revenue programs “cover shallow losses;” many farmers also

have an enhanced insurance option on top of individual policies

The Next Farm Bill

Farm Bill Next Authorization in 2018 ~ Process to Begin in 2017 • It addresses conservation programs in agriculture, energy incentives,

trade access programs, research, and other areas – DOES NOT reauthorize crop insurance

• Last two Farm Bills contained crop insurance as a key section

Key Safety Net: U.S. Federal Crop Insurance Program

In context - insurance for 128 crops, a range of coverage levels: • Coverage -- 438 combinations of crops and plan types available

(Yield, Revenue, Area/individual farm, Whole farm, Asset) • 89% of planted acreage; 290 million acres insured; 18 approved

insurance providers; 10,000-plus insurance agents

Sources: Risk Management Agency - USDA, Crop Insurance In America, James Callan Associates

Key Safety Net: U.S. Federal Crop Insurance Program

• Administered by the Risk Management Agency (RMA) of U.S. Department of Agriculture (USDA); Federal Crop Insurance Corp. Board reviews/approves policies • Standard Reinsurance Agreement (SRA) between USDA and 18 Private Sector –

RMA renegotiated SRA in 2005 and 2011 • U.S. program is largest, most wide ranging; Spain, Canada, and Japan have well

established programs; China’s is now second; India, Europe want more Sources: Risk Management Agency - USDA, Crop Insurance In America, James Callan Associates

Federal Crop Insurance – Revenue Insurance

Revenue Protection Insurance: • Provides protection with harvest price component -- upside and downside

protection • Combination of yield and price protection in the event of reduced production and

higher prices; will provide most of the indemnities in 2016

• Largest part of the Federal crop insurance program – has attention of opponents and budget cutters

Crop Year 2013 2014 2015

Value of Insurance $124 Billion $110 Billion $102 Billion

Acres Insured 296 Million Acres 295 Million Acres 298 Million Acres

Total Premium $11.8 Billion $10.1 Billion $9.7 Billion

Claims Paid So Far In 2015 $12 Billion $9.1 Billion $4.8 Billion

Loss Ratio 1.02 .91 .50

Above equals stability, certainty that funds are available providing support in intensive production environment with worldwide implications for market certainty, investment, and output

*Combined figures for crop and livestock insurance, where applicable **These are real-time estimates

Data Source: Risk Management Agency – USDA

U.S. Federal Crop Insurance Program Snapshot* – 1-11-16**

Crop Year 2013 2014 2015

Value of Insurance $1.9 Billion $1.2 Billion $1.05 Billion

Acres Insured 4 Million Acres 3 Million Acres 2.76 Million Acres

Total Premium $344 Million $233 Million $204 Million

Claims Paid So Far for 2015 $329 Million $160 Million $66 Million

Loss Ratio .96 .73 .33

**These are real-time estimates

Data Source: Risk Management Agency – USDA

North Dakota Corn Federal Crop Insurance Snapshot* – 1-11-16**

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Farm Bill Voices – Who are key in Congress? Farm Bill Reauthorization and Federal Crop Insurance

• Senate Ag Chairman Pat Roberts (R-KS), Ranking Member Debbie Stabenow (D-MI)

• House Ag Chairman Michael Conaway (R-TX-11), Ranking Member Collin Peterson (D-MN-7)

• Others – Sens. Jeff Flake (R-AZ) and Jeanne Shaheen (D-NH), Reps. Ron Kind (D-WI-

3) and Jim Sensenbrenner (R-WI-5) – all have the program in their sights

• Budget process poses risks, even if Farm Bill has “locked” in agreement not to reduce crop insurance

Farm Bill Voices – Who are key in Congress? (cont.)

• Speaker Paul Ryan (R-WI-1) received the benefit of former Speaker John Boehner’s negotiation of the two-year budget deal with The White House and the Senate

• He has not been a strong supporter of crop insurance; needs on-going education • At $10 billion per year, crop insurance costs the Federal government about ¼ of one

percent of total U.S. government spending • Your Members are very supportive – Sens. Hoeven, Heitkamp, and Rep. Cramer

Congress and the 2016 Elections

Current political makeup

• House: 247 Republicans, 188 Democrats. Most political “experts” believe the House will remain in Republican hands in November.

• Senate: 54 Republicans, 44 Democrats, 2 Independents (both caucus with the

Democrats) • Senate is up for grabs, since Republicans are defending 24 seats this cycle, while

Democrats are defending only 10

Senators Facing Re-Election in 2016:

Republicans

Kelly Ayotte (New Hampshire) Mike Lee (Utah) Roy Blunt (Missouri) John McCain (Arizona) John Boozman (Arkansas) Jerry Moran (Kansas) Richard Burr (North Carolina) Lisa Murkowski (Alaska) Dan Coats (Indiana) Rand Paul (Kentucky) Mike Crapo (Idaho) Rob Portman (Ohio) Chuck Grassley (Iowa) Marco Rubio (Florida)* John Hoeven (North Dakota) Tim Scott (South Carolina) Johnny Isakson (Georgia) Richard Shelby (Alabama) Ron Johnson (Wisconsin) John Thune (South Dakota) Mark Kirk (Illinois) Pat Toomey (Pennsylvania) James Lankford (Oklahoma) David Vitter (Louisiana)

*Running for President, Open Seat

Senators Facing Re-Election in 2016:

Democrats

Michael Bennet (Colorado) Richard Blumenthal (Connecticut) Barbara Boxer (California) Retiring Patrick Leahy (Vermont) Barbara Mikulski (Maryland) Retiring Patty Murray (Washington) Harry Reid (Nevada) Retiring Brian Schatz (Hawaii) Charles Schumer (New York) Ron Wyden (Oregon)

Congress and the 2016 Elections

Key Senate Races

• 3 toss-ups: New Hampshire (R), Florida (R), Nevada (D) • If Republicans hold at least one of the above and pick up Nevada, they would likely

keep the Senate – many believe Illinois (R) and Wisconsin (R) will flip from R to D • Senate more impacted than the House by the presidential race

• Watch Pennsylvania and Ohio - Republicans need to hold them

Sources: Sabato’s Crystal Ball; James Callan Associates LLC

U.S. House – What Will Happen?

• 9 competitive races – 7Rs, 2 Ds: IA-R-1, CO-R-6, AZ-D-1 (Open), IL-R-10, FL-D-18 (Open), UT-R-4, MN-R-2, NH-R-1, NJ-R-5). Source: The Hill, Jan. 1, 2016

• If Republicans nominate a controversial presidential candidate, would Democrats

benefit? Or, is the country fed up with “politics as usual” and “ready for change?” • President Obama’s approval rating has been at about only 47%; unlikely to be as

much enthusiasm in November for the Democrat nominee as in 2008, 2012

• New Census in 2020, resulting in re-districting in 2022; House Republicans have an advantage until then

The Presidential Campaign - Factors

• Controversies surrounding Hillary Clinton unlikely to disappear

• Republicans benefit from history – only one party has won more than two

consecutive terms since 1948 • Is this a change election or the status quo? • Demographic changes in U.S. favor the Democrats • The economy – up, down, or sideways? Another terrorist attack in U.S.?

Future Farm Policy Challenges

• Cuts to crop insurance

• Vulnerabilities to Prevented Planting

• ARC-Co. yields problem

• Environmental Rules – worker and farm safety; pesticides; “sue and

settle” actions by activist groups

Future Farm Policy Challenges (Cont.)

• Commodity Prices, input costs – RFS rollback

• Biotechnology overregulation

• Political environment adverse to rural America

• Need for alliances – food/nutrition, minority/consumer groups

Farm Policy Factors

• Budgetary pressures

• Polarization within parties

• Presidential politics – RFS up front w/Iowa caucuses

• Demographics/Foodies

Continuing Attacks on “Big Agriculture”

• Farm bill spending – budget reconciliation

• Crop insurance subsidies

• WOTUS

• Endangered Species

• Climate and carbon caps

Building Coalitions

• Sportsmen’s groups should be important allies

• Food and Nutrition groups – historically important, but how about today, i.e., GMO Labeling?

• Other interest groups: CBC? Hispanic coalition? Religious? Sources: Agri-Pulse, James Callan Associates LLC

Questions? Thank you!

For further information, contact:

James Callan

jamescallan@msn.com ~ (703) 577-1978