Farm Bill Global Agriculture Conference Spencer Iowa February
Farm Bill Global Agriculture Conference Spencer, Iowa February 26, 2009 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate. edu 515 -294 -9911 Department of Economics
Farm Bill Titles I. III. IV. V. Commodities Conservation Trade Nutrition Credit Futures VI. Rural Development VII. Research VIII. Forestry Department of Economics IX. Energy X. Hort. & Organic Ag. XI. Livestock XII. Crop Insurance XIII. Commodity XIV. Miscellaneous XV. Trade & Taxes
Farm Bill Projected Spending 2008 -2013 $297 Billion Department of Economics
The 2008 Farm Bill ØContinues many of the same programs we have currently ØDirect payments ØPrice countercyclical payments (CCPs) ØMarketing loans ØCRP, EQIP, and other conservation programs ØGives producers a choice on programs ØAverage Crop Revenue Election (ACRE) ØSets up new permanent disaster program ØSupplemental Revenue Assistance Payments Program (SURE) Department of Economics
Target Price Changes Crop Unit 2008 -09 2010 -12 Corn $/bu. 2. 63 Soybeans $/bu. 5. 80 6. 00 Barley $/bu. 2. 24 2. 63 Wheat $/bu. 3. 92 4. 17 Oats $/bu. 1. 44 1. 79 Cotton $/lb. 0. 724 0. 7125 Sorghum $/bu. 2. 57 2. 63 Department of Economics
Direct Payment Rates Crop Unit 2008 -12 Corn $/bu. 0. 28 Soybeans $/bu. 0. 44 Barley $/bu. 0. 24 Wheat $/bu. 0. 52 Oats $/bu. 0. 024 Cotton $/lb. 0. 0667 Sorghum $/bu. 0. 35 Department of Economics
Loan Rate Changes Crop Unit 2008 -09 2010 -12 Corn $/bu. 1. 95 Soybeans $/bu. 5. 00 Barley $/bu. 1. 85 1. 95 Wheat $/bu. 2. 75 2. 94 Oats $/bu. 1. 33 1. 39 Cotton $/lb. 0. 52 Sorghum $/bu. 1. 95 Department of Economics
Other Adjustments to Current Programs Ø Payment acres = 85% of base in 2008 and 2012 Ø Payment acres = 83. 3% of base in 2009 -11 Ø Establishes pulse crops (dry peas, lentils, chickpeas) as program crops Ø Posted county price based on 30 -day moving average Department of Economics
Average Crop Revenue Election (ACRE) Ø ACRE is a revenue-based counter-cyclical payment program Ø Based on state and farm-level yields per planted acre and national prices Ø Producers choose between the current price -based counter-cyclical payment (CCP) program and ACRE Ø There are still some details to be worked out about ACRE (stay tuned) Department of Economics
Farmer Choice Ø Starting in 2009, producers will be given the option of choosing ACRE or not Ø Can choose to start ACRE in 2009, 2010, or beyond Ø Once you’re in ACRE, you stay in ACRE until the next farm bill Ø If you sign up for ACRE, you must do so for all eligible crops Ø Deadline for sign-up, June 1 of each year Ø Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates Department of Economics
ACRE Settings Ø ACRE is based on planted acres Ø Total acres eligible for ACRE payments limited to total number of base acres on the farm Ø Farmers may choose which planted acres are enrolled in ACRE when total base area is exceeded Department of Economics
ACRE Set-up for Iowa Corn Year Yield per Planted Acre (bu. /acre) Year Season-average Price ($/bu. ) 2004 176. 7 2007 4. 20 2005 168. 9 2008 3. 90 2006 162. 7 2007 167. 4 Averag e 4. 05 2008 164. 6 Olympic Average 167. 0 The 2008 yield and price are USDA’s February 2009 estimates. So the expected state yield would be 167. 0 bushels per acre and the ACRE price guarantee would be $4. 05 per bushel. Department of Economics
ACRE Triggers Ø ACRE revenue guarantee = 90% * ACRE price guarantee * Expected state yield Ø ACRE Farm revenue trigger = Expected farm yield * ACRE price guarantee + Producer-paid crop insurance premium Ø Both the state and farm triggers have to be tripped to receive an ACRE payment Department of Economics
ACRE Revenues to Count Ø ACRE actual revenue = Max(Seasonaverage price, Loan rate) * Actual state yield per planted acre Ø ACRE actual farm revenue = Max(Seasonaverage price, Loan rate) * Actual farm yield per planted acre Department of Economics
ACRE Payments Ø Payment rate = Min(ACRE revenue guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee) Ø Payments made on 83. 3% of planted/base acres in 2009 -11, 85% in 2012 Ø ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield Department of Economics
An Example for 2009 Ø To start, we need the expected state and farm yields and the ACRE price guarantee Ø Expected state yield Ø Expected farm yield 167 bu/acre 180 bu/acre Ø 2004 -08 Olympic average of yields per planted acre Ø ACRE price guarantee $4. 05/bu Ø Average of 2007 and 2008 season-average prices Ø ACRE Revenue Guarantee $608. 72 Ø 90% * $4. 05/bu * 167 bu/acre Ø ACRE Farm Revenue Guarantee Ø $4. 05 * 180 bu/acre + $20/acre Department of Economics $749. 00
Example (continued) Ø For 2009, we need the actual state yield, the actual farm yield , and the season-average price Ø Actual state yield Ø Actual farm yield Ø Season-Average Price Ø ACRE Actual Revenue 165 bu/acre 190 bu/acre $3. 50/bu $577. 50 Ø $3. 50/bu * 165 bu/acre Ø ACRE Farm Actual Revenue Ø $3. 50/bu * 190 bu/acre Department of Economics $665. 00
Example (continued) Ø State Trigger ØACRE Revenue Guarantee ØACRE Actual Revenue $608. 72 $577. 50 Ø So we’ve met the state trigger Ø Farm Trigger ØACRE Farm Revenue Guarantee ØACRE Farm Actual Revenue Ø So we’ve met the farm trigger Department of Economics $749. 00 $665. 00
Example (continued) Ø ACRE Payment $28. 03 ØMin(25%*$608. 72, $608. 72 – $577. 50) * (180 bu/acre / 167 bu/acre) * 83. 3% Department of Economics
ACRE vs. CCP pays No CCP payments No ACRE payments ACRE pays out Department of Economics
You Don’t Have to Decide Today Ø ACRE signup will not be for a while, probably starting in April Ø Once the ACRE rules are finalized, there will be a number of decision tools available to help producers Ø Preliminary ACRE information and tools are available at: http: //www. extension. iastate. edu/agdm/crops/html/a 1 -45. html http: //www. card. iastate. edu/ag_risk_tools/acre/ Department of Economics
Supplemental Revenue Assistance Payments Program (SURE) Ø Provides payments to producers in disaster counties for crop losses Ø Based on crop insurance program, noninsured crop assistance program, and disaster declarations Ø Whole-farm revenue protection, not commodity-specific Department of Economics
SURE Triggers Ø Declared “disaster county” by Secretary of Agriculture or contiguous to one Ø Farm with losses exceeding 50% of normal production in a calendar year Department of Economics
SURE Settings Ø Participation and revenue guarantee tied to crop insurance Ø Farm revenue, including some government payments, used to determine payment Ø Payments set as 60% of the difference between guarantee and actual revenue ØLimited to $100, 000 per producer ØPayments not known or paid until the end of the marketing year Department of Economics
SURE Guarantee Ø Farm guarantee is the sum of Ø (115 or 120)%*Crop insurance price election*Crop insurance coverage level*Planted acres* Max(APH or CCP yield), for insurable commodities Ø (120 or 125)%*NCAP price election*Planted acres* Max(NCAP or CCP yield), for non-insurable commodities Ø For an individual crop, the guarantee can not be greater than 90% of the crop’s expected revenue Department of Economics
SURE Expected Farm Revenues Ø Expected farm revenue is the sum of ØMax(APH or CCP yield)*Planted acres*100% of the crop insurance price for insurable commodities Ø 100% of NCAP yield*100% of NCAP price*Planted acres for non-insurable commodities Department of Economics
SURE Actual Farm Revenues Ø Actual farm revenue is the sum of ØHarvested acres*Farm yield*National seasonaverage price for all commodities Ø 15% of direct payments ØAll CCP or ACRE payments ØAll marketing loan benefits ØAll crop insurance or NCAP payments ØAny other disaster assistance payments Department of Economics
SURE Calculator Ø USDA has created a calculator for SURE Ø http: //www. fsa. usda. gov/Internet/FSA_File/sure_calculator. xls Ø http: //www. fsa. usda. gov/Internet/FSA_File/calculator_instructions. pdf Ø Calculator limited to yield based crops Ø Does not address value loss crop, prevented planting, double cropping, and several other scenarios Ø ISU Extension information on SURE Ø http: //www. extension. iastate. edu/agdm/crops/html/a 1 -44. html Ø http: //www. extension. iastate. edu/agdm/crops/xls/a 1 -44 surecalculator. xls Department of Economics
Payment Limitations Ø Direct payments: $40, 000 (w/o ACRE) $32, 000 (w/ ACRE) Ø Counter-cyclical payments: $65, 000 Ø ACRE: $73, 000 ($65, 000 + $8, 000) Ø Marketing loans: No limits Ø Direct attribution of payments Ø Elimination of the 3 -entity rule Department of Economics
Thank you for your time! Any questions? My web site: http: //www. econ. iastate. edu/faculty/hart/ Iowa Farm Outlook: http: //www. econ. iastate. edu/outreach/agriculture/periodicals/ifo/ Ag Decision Maker: http: //www. extension. iastate. edu/agdm/ Department of Economics
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