Farm Bill: What We Know and What We Dont Know

37th Annual Randall County Ag. Show and Crop Tour Canyon, Texas September 24, 2013

Presented By: Dr. Steve Amosson Regents Fellow Professor and Extension Economist

Presentation Outline
History of Farm Programs What the Farm Bill May Look Like Potential Implication That Nobody is Talking About Summary and Closing Comments

Evolution of Farm Programs

Purpose of Farm Programs

To provide security and stability to food and agricultural industries and commodity markets through
Credit lending systems Subsidies and insurance Commodity price ceilings/support Conservation programs Energy programs Nutrition programs

Federal Farm Loan Act of 1916

Created the Farm Credit System
Established 12 Federal Land Banks, a Federal Farm Loan Board, and hundreds of National Farm Loan Associations

Provided long-term credit to farmers to develop and enlarge farms

Sources: http://www.fca.gov/about/history/historyFCA_FCS.html, http://www.farmcreditarchive.org/

Agricultural Adjustment Act of 1933

Stabilized markets by decreasing acreage used, reducing exports, and raising prices Created payment subsidies to farmers that were funded by taxing commodity processing companies Declared unconstitutional in 1936 Revised act passed in 1938

Sources: http://www.britannica.com/EBchecked/topic/9551/Agricultural-Adjustment-Administration-AAA , http://www.nationalaglawcenter.org/farmbills/#33

Food and Agricultural Act of 1965

First multi-year farm legislation Provided 4 year commodity programs for wheat, feed grains, and upland cotton
Continued payment and diversion programs for feed grains and cotton Continued certificate and diversion programs for wheat

Sources: http://www.aphis.usda.gov/animal_health/emergingissues/downloads/6farmpol.pdf, http://www.nationalaglawcenter.org/farmbills/#33

Food Security Act of 1985

Created provisions for the conservation of wetlands Continued price and income supports for many commodities Changed USDA credit programs from direct to guaranteed loans

Source: http://www.ers.usda.gov/publications/aib-agricultural-information-bulletin/aib498.aspx#.Ui5CCn8wESk

FAIR Act of 1996

Basis was create a market oriented system with little to no government price or income supports for crops
Attempted to eliminate planting restrictions and conditional direct payments

Failed due to dropping prices and more competition from freer trade after 1996
Caused a need for record high government payments
Source: http://www.agpolicy.org/pubs/nd.pdf

Farm Bill of 2002

Adjusted all base acres Established individual payment limitations for direct payments, counter-cyclical payments, marketing loan gains, and/or loan deficiency payments Increased acreage caps on conservation programs

Source: http://agecoext.tamu.edu/fileadmin/user_upload/Documents/Resources/2002act.pdf

Farm Bill of 2008

Reauthorized commodity programs
Bill included reductions in payment limits, some payment rate changes, inclusion of a new revenue program, crop insurance reform, and a new permanent disaster assistance program

AGI limits were imposed on direct and conservation payments Increased funding to conservation and energy programs Country of Origin Labeling fully implemented
Source: http://www.agrisk.umn.edu/uploads/ARL03714.pdf

 Has It Worked????

Total Percentage of Disposable Income Annually Spent on Food in the U.S.

30 25

20 Percentage

15

10

9.8

0 1929 1932 1935 1938 1941 1944 1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 Year
Data retrieved Sept. 6, 2013 from http://www.ers.usda.gov/topics/food-choices-health/food-consumption-demand/food-away-from-home.aspx#.Uio3DX8wESk

2010

25

American at Home Consumption vs. Away from Home Consumption As a Percentage of Disposable Income

20

Percentage

15

10

5.7 4.1

0 1929 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Year At home Percent Away from home Percent
Data retrieved Sept. 6, 2013 from http://www.ers.usda.gov/topics/food-choices-health/food-consumption-demand/food-away-from-home.aspx#.Uio3DX8wESk

Percentage of Disposable Income Spent on Food by Country in 2012

50 40

Percentage

30

20

10

Data retrieved Sept. 6, 2013 from http://www.ers.usda.gov/data-products/food-expenditures.aspx#.Uio_zn8wESk

Projected Percentage of Farm Programs Spent on Ag Commodities

U.S. Exports
2,500,000 Exports Total Exports Goods BOP Exports Services 2,000,000

Millions of Dollars

1,500,000

1,000,000

500,000

0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Year 2012

Data retrieved Sept. 6, 2013 from http://www.census.gov/foreign-trade/statistics/historical/

What is Being Considered in the New Farm Program

Current Farm Policy

Under current market conditions traditional farm policy tools are largely irrelevant as a safety net Crop insurance is key:
Sometimes to make large profits Others to stay in business

Depends on the relationship between marketing year price for crop and insurance prices determined by futures markets

Factors Influencing Farm Bill

Perception among many in Congress that recent high prices for some commodities has lessened the need for a farmer safety net Moderates of both parties lost in recent elections. The influence of the extreme right of the Republican party and extreme left of Democratic party has made compromise almost impossible
Ex. Many new Republican house members voted against the House Bill because it only saved $30 Billion over 10 years want more cuts

Lack of agreement/backstabbing among commodity groups regarding commodity program Interest groups such as EWG, Heritage Foundation, Americans for Prosperity, American Enterprise Institute New Members on Ag Committees especially in the House

Mandatory Spending Baseline for the 2008 Farm Bill Programs and Provisions, by Title, ($M), FY 2014-23

For Perspective for all the excitement and press received, commodity programs account for only 0.15% of the U.S. Budget

Source: CBO February 2013 Baseline

Where Are We in Process?

The Senate has passed their version of the bill The full House failed to pass its version. They split the Nutrition title out and passed the remaining titles in June
Working to find some way to move the Nutrition title before going to conference with the Senate Eliminated the permanent law from 1938 & 1949 and replaced with 2013 as permanent law

Not a Question of Whether FB Will Provide Less Support than Previous Just by How Much?
The bills are very similar except for some elements of commodity programs
The Senate bill puts all crops other than cotton in:
Agriculture Risk Coverage (ARC) - a shallow loss type of safety net program with a choice of using their own yields or county yields and Adverse Market Payment (AMP) which is a CCP type program to provide assistance in the event of price declines A supplemental coverage option (SCO) area-wide insurance program is available for purchase to cover shallow losses on top of current buy-up insurance

The House bill allows producers to choose between a shallow loss or price based safety net that also has area based insurance option (SCO)

Proposed 2013 Farm Bills

Bill Senate Passed Bill House Ag Committee Passed Federal Agriculture Reform and Risk Management Act of 2013 576 12

Title

Agriculture Reform, Food, and Jobs Act of 2013 1,150 12

Pages Titles

Provisions

Senate Agriculture Risk Coverage (ARC) Provisions Starts at 88% of previous 5-year moving Olympic average revenue for the crop

House Revenue Loss Coverage (RLC) Provisions Starts at 85% of previous 5-year moving Olympic average revenue for the crop

Revenue guarantee

County Level or Individual Level Coverage Payment acres

One time irrevocable selection of either county level or individual level

County level

65% of planted acres not to exceed the average total acres planted or prevented from being planted to covered commodities and upland cotton on the farm for the 2009 2012 crop years if individual level coverage is selected or 80% for county level coverage

85% of planted acres and 30% of prevented planted acres not to exceed base acres on the farm (upland cotton base acres are included in total farm base acres) (payment factor of 85% is applied to planted acres before checking whole farm base cap)

Payment band or range

10% (88% to 78%)

10% (85% to 75%)

Provisions

Senate Agriculture Risk Coverage (ARC) Provisions

House Revenue Loss Coverage (RLC) Provisions

Reference Prices Used to Replace Low Prices in Calculating Revenue Guarantee

Only applicable for rice and peanuts Long Grain Rice - $13.30/cwt Medium Grain Rice - $13.30/cwt Peanuts - $523.77/ton

Wheat - $5.50/bu Corn - $3.70/bu Grain Sorghum - $3.95/bu Barley - $4.95/bu Oats - $2.40/bu Long Grain Rice - $14.00/cwt Medium Grain Rice - $14.00/cwt Soybeans - $8.40/bu Other Oilseeds - $20.15/bu Peanuts - $535/ton Dry Peas - $11.00/cwt Lentils - $19.97/cwt Small Chickpeas - $19.04/cwt Large Chickpeas - $21.54/cwt

Provisions Payment Acres

Senate Adverse Market Payment (AMP) 85% of base acres

House Price Loss Coverage (PLC) Program 85% of planted acres and 30% of prevented planted acres not to exceed base acres on the farm (upland cotton base acres are included in total farm base acres) (payment factor of 85% is applied to planted acres before checking whole farm base cap) Wheat - $5.50/bu Corn - $3.70/bu Grain Sorghum - $3.95/bu Barley - $4.95/bu Oats - $2.40/bu Long Grain Rice - $14.00/cwt Medium Grain Rice - $14.00/cwt Soybeans - $8.40/bu Other Oilseeds - $20.15/cwt Peanuts - $535/ton Dry Peas - $11.00/cwt Lentils - $19.97/cwt Small Chickpeas - $19.04/cwt Large Chickpeas - $21.54/cwt Temperate Japonica rice 115% of long grain rice or $16.10

Reference Prices

Wheat - $4.17/bu Corn - $2.63/bu Grain Sorghum - $2.63/bu Barley - $2.63/bu Oats - $1.79/bu Long Grain Rice - $13.30/cwt Medium Grain Rice - $13.30/cwt Soybeans - $6.00/bu Other Oilseeds - $12.68/cwt Peanuts - $523.77/ton Dry Peas - $8.32/cwt Lentils - $12.81/cwt Small Chickpeas - $10.36/cwt Large Chickpeas - $12.81/cwt

Full Senate passed bill changed reference prices to use the most recent 5 year olympic average market prices multiplied times .55 except for rice and peanuts which are set at $13.30/cwt and $523.77/ton, respectively. Price Trigger If the average marketing year price falls below the reference price for the commodity. Uses the higher of the average market price or national average loan rate. CCP yields for all crops other than rice, peanuts, oilseed and pulse crops without a payment yield. Rice allows updating of CCP yields for rice depending upon the percentage of the crops base acres planted over the 2009-2012 period o If the 2009-2012 average planted acres were greater than 50% of base acres then the yield is 90% of the average yield from 2009-2012 o If the 2009-2012 average planted acres were less than 50% of base acres then the updated yield equals the CCP yield plus (percent of base acres planted times the difference between the 2009-2012 average yield and CCP yield) - Peanuts allow for updating using the average of 2009-2012 planted acre yields, omitting years not planted and replacing low yields with 75% of county average. $50,000 for ARC and AMP combined, peanuts with a separate limit

The average price during the first 5 months of the marketing year falls below the reference price for the commodity. Uses the higher of the first 5 months average market price or national average loan rate. CCP yields from the 2008 Farm Bill or establishes a methodology for producers of oilseeds without a CCP yield. Farm owner option to update payment yields to 90% of the average of the yield per planted acre for the crop for the 2008 to 2012 crop years, excluding any crop year in which the acreage planted was zero. Can replace yields lower than 75% of the county average with 75% of the county average when calculating the average.

Payment Yields

Payment Limitation

$50,000 for PLC and RLC combined, peanuts no longer with a separate limit

Distribution of Government Support

Example: Corn
Reflects payments not on full production (payment acres = .85 x base acres) Decoupled (do not have to produce to receive payment)

Revenue per bu
Target Price $2.63

CCP
Fixed payment $0.28

Loan Rate $1.95 Market Price

MLG/LDP Market Receipts

Coupled (do have to produce to receive benefits from marketing loans gains or LDPs)

Distribution of Shallow Loss/Gap Revenue Coverage Example: Corn

Revenue per bu
5 yr moving avg of revenues
89% 79% Loan Rate $1.95 Market Price Most are calling this the donut hole

MLG Market Receipts

This will be the centerpiece of the govt safety net [paid on planted acres x .65 or .8]

Coupled (do have to produce to receive benefits from all components now
Crop insurance coverage

House Price Loss Coverage

Example: Corn

Revenue per bu
Reference Price $3.70

PLC
Loan Rate $1.95 Market Price

Paid on planted acres (not to exceed base) x .85)

MLG/LDP Market Receipts

Provisions SCO Coverage

Senate SCO and STAX Producer has the option of purchasing on an individual yield and loss basis or an area yield and loss basis or an individual yield and loss basis, supplemented with coverage based on an area yield and loss basis to cover all or a part of the deductible under the individual yield and loss policy, or a margin basis alone or in combination withindividual yield and loss coverage; or area yield and loss coverage If an ARC participant, coverage from individual producer buyup insurance coverage level up to 79%. If producer opts out of ARC, then from individual producer insurance coverage level to 90%. 65% Producer elects coverage for revenue loss of not less than 10 percent and not more than 30 percent of expected county revenue, specified in increments of 5 percent. None 80%

House SCO and STAX Producer has the option of purchasing additional coverage based on an individual yield and loss basis or an area yield and loss basis or an individual yield and loss basis, supplemented with coverage based on an area yield and loss basis to cover all or a part of the deductible under the individual yield and loss policy

SCO Band

If in PLC, from individual producer insurance coverage level up to 90%. Not available if in RLC.

SCO Premium Subsidy STAX Coverage Band

65% Producer elects coverage for revenue loss of not less than 10 percent and not more than 30 percent of expected county revenue, specified in increments of 5 percent. $0.6861/lb 80%

STAX Reference Price STAX Premium Subsidy

Distribution of Shallow Loss/Gap Revenue Coverage Example: Corn

Revenue per bu
5 yr moving avg of revenues
89% 79% Loan Rate $1.95 Market Price Supplemental Coverage Option

MLG Market Receipts

This will be the centerpiece of the govt safety net [paid on planted acres x .65 or .8]

Coupled (do have to produce to receive benefits from all components now
Crop insurance coverage

House Price Loss Coverage

Example: Wheat

Revenue per bu
Reference Price $5.50

Supplemental Coverage Option

PLC

Paid on planted acres (not to exceed base) x .85)

Loan Rate $2.94 Market Price

MLG/LDP Market Receipts

Projected Corn Outcomes

6.00 5.00 4.00 5 Yr Oly Avg $/bu 3.00 2.00 1.00 0.00 88% 78% Mkt Price

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Projected Soybean Outcomes

14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 5 Yr Oly Avg 88% 78% Mkt Price

$/bu

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Projected Wheat Outcomes

8.00 7.00 6.00 5.00 $/bu 4.00 3.00 2.00 1.00 0.00
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

5 Yr Oly Avg 88% 78% Mkt Price

Current TPs and Senate Bill Reference Prices Used to Determine Adverse Market Payments for 2013
7 6 5
4.17 6 6.04

$/bushel

4 3 2 1 0

3.63 2.63 2.43 2.83 2.63

2008 TP 5 YR OLY Avg * .55

Wheat

Grain Sorghum

Corn

Soybeans

Conservation Provisions Spending Cut Consolidates Programs

Senate $3.5 billion 23 programs combined into four fundamental program functions 26 million acre CAP EQIP, CSP, Easements Enrollment limited to 10.348 million acres/year

House $4.8 billon 23 programs to 13

CRP Working Lands Conservation Security Program

25 million acre CAP EQIP, CSP, Easements Enrollment limited to 9 million acres/year

CRP Acres for Panhandle

County ARMSTRONG BRISCOE CARSON COLLINGSWORTH DALLAM DEAF SMITH DONLEY GRAY HALL HANSFORD HARTLEY HEMPHILL HUTCHINSON LIPSCOMB MOORE OCHILTREE OLDHAM POTTER RANDALL ROBERTS SHERMAN WHEELER Totals Total Acreage FY 2011 (as of FY 2011 (as of Acres Available for Acres January) Active January) Active Expired Enrollment FY 2011 Expiring Total Cropland CRP Contracts CRP Acreage 9/30/2010 Signup 39 9/30/2011 162,130 111 22,357 7,811 25,987 3,824 176,734 225 41,997 6,586 8,773 1,108 293,164 223 59,314 2,493 16,470 6,036 232,241 311 39,341 11,245 29,964 9,024 467,060 359 117,217 6,125 5,672 14,629 627,413 505 156,789 171 235 16,879 103,153 168 20,498 4,656 9,946 1,521 193,540 166 33,314 4,631 19,702 1,751 228,991 377 50,341 15,933 22,840 5,159 357,249 110 24,054 8,545 73,803 6,778 310,648 238 40,155 4,199 41,705 4,950 70,185 73 11,599 1,249 7,197 1,119 116,957 15 3,461 25,779 0 177,649 180 36,334 7,309 15,388 7,488 282,962 87 19,848 6,104 56,996 5,474 385,215 177 36,118 3,868 64,054 6,211 113,766 71 21,449 9,582 16,575 4,990 44,308 36 7,827 475 3,725 987 293,654 255 73,727 6,479 6,166 3,460 47,409 29 7,724 2,155 6,282 1,403 398,145 377 90,805 22,542 31,273 13,880 174,441 220 31,156 7,903 20,357 6,595 5,257,013 4,313 945,425 140,061 508,889 123,266 Acreage Available Acres for Enrollment FY Expiring 2012 Signup 41 9/30/2012 22,000 13,471 3,295 7,685 20,014 17,895 27,743 9,982 14,177 18,881 16,943 90 6,811 7,729 16,822 12,672 12,065 13,459 72,036 4,571 42,457 7,551 7,066 2,074 25,779 496 15,566 8,136 56,366 4,099 66,397 9,706 11,983 8,340 4,237 1,413 3,147 21,185 5,531 1,336 22,611 23,063 19,049 13,596 492,094 207,428

CRP Acres for Panhandle (contd)

County ARMSTRONG BRISCOE CARSON COLLINGSWORTH DALLAM DEAF SMITH DONLEY GRAY HALL HANSFORD HARTLEY HEMPHILL HUTCHINSON LIPSCOMB MOORE OCHILTREE OLDHAM POTTER RANDALL ROBERTS SHERMAN WHEELER Totals Total Cropland 162,130 176,734 293,164 232,241 467,060 627,413 103,153 193,540 228,991 357,249 310,648 70,185 116,957 177,649 282,962 385,215 113,766 44,308 293,654 47,409 398,145 174,441 5,257,013 Acres Expiring 9/30/2013 136 1,189 10,472 2,074 2,094 38 873 2,021 2,614 2,189 2,416 782 617 3,096 1,302 6,377 928 2,496 25,396 144 10,796 1,873 79,921 Acres Acres Expiring Acres Expiring Acres Expiring Expiring 9/30/2016 9/30/2017 9/30/2014 9/30/2015 0 0 11,540 1,659 1,745 7 0 7,323 1,253 1,372 4,608 3,082 526 4,783 3,338 1,396 1,646 1,613 1,292 1,142 5,828 985 55,137 0 0 2,832 592 115 44 121 2,531 2,402 1,695 4,639 275 0 1,083 293 1,784 0 0 0 584 4,656 412 24,056 0 0 72 732 1 30 0 404 0 525 1,950 0 458 153 430 3,640 0 96 0 466 2,008 265 11,229 208 193 2,350 0 48,801 13 145 532 6 183 722 401 0 0 0 34 80 0 0 44 520 63 54,293 Acres Expiring 9/30/2018 0 1,000 883 145 7,915 42 1,055 1,492 91 161 339 64 0 73 124 20 446 0 2,398 101 1,017 0 17,366 Acres Acres Expiring Expiring 9/30/2019 9/30/>2019 0 0 754 1,191 7,814 0 0 983 0 0 1,023 1,122 0 1,018 128 50 132 0 4,719 0 1,405 0 20,338 0 40 1,216 0 962 0 0 0 334 210 204 0 132 356 53 1,295 0 36 0 0 815 0 5,651

Future Farm Policy

How could anyone paying attention to the farm bill process not think it will be much less important going forward not a lot of safety in the safety net
Groups clamoring to reduce safety net must want agriculture left with nothing because there isnt much there now

IF crop insurance is not severely cut in the Farm Bill process then it will be the centerpiece in the very near future

Farm Program Loss of Direct Payments

Loss in Direct Payments

Relative
Decrease in cash rents Decrease in land values

Potential Impact of the Loss of Direct Payments on Land Prices

Reduction in DP ($/Acre) $/Acre1 Years 5 10 20 $5 21.06 36.80 57.35 $15 63.18 110.40 172.04 206.46 $25 105.30 184.00 286.73 344.10 $35 147.42 257.60 401.42 481.74

30 68.82 1Discounted at 6%

Summary
They will add Nutrition programs back into farm bill in conference Probably a 50/50 chance the farm bill will be finished before the end of the calendar year
If not there will be pressure to do another extension and There will be pressure to not do anything to assist agriculture Dairy will be a problem

To deal with less support, producers will need to understand the relationship and interaction between the commodity programs and insurance programs A&M is developing a software program to help you

make the program participation decisions

Educational programs of Texas A&M AgriLife Extension Service are open to all people without regard to race, color, sex, disability, religion, age or national origin.