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The 2018 Farm Bill and

Agricultural Trade
Disputes
PAT W E S T H O F F ( W E S T H O F F P @ M I S S O U R I . E D U )
N AT I O N A L P R E S S F O U N D AT I O N , S T. LO U I S
SEPTEMBER 18, 2019
Agenda
• A brief history of farm programs and some context
• The farm bill
• What’s in the 2018 legislation?
• Implementation, producer choices and future issues
• Trade disputes
• Effects on trade and U.S. agriculture
• Administration’s trade mitigation packages

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 2


What’s FAPRI?
Food and Agricultural Policy Research Institute at the University of Missouri
Mission: Provide objective analysis of agricultural markets and policies
Signature product: 10-year outlook for the farm economy each March
Baseline outlook becomes point of reference for policy and market scenarios
Funding from USDA’s Office of the Chief Economist, other agencies & MU
10 full-time staff at MU, now including former USDA WAOB chair Seth Meyer
Collaborators around the world
We’re at www.fapri.missouri.edu and @FAPRI_MU on Twitter

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 3


Some good background
readings
History:
◦ The 20th Century Transformation of U.S. Agriculture and Farm Policy by Carolyn Dimitri, Anne
Effland and Neilson Conklin (USDA Economic Research Service)
◦ Available at: https://www.ers.usda.gov/publications/pub-details/?pubid=44198

Congressional Research Service reports on the 2018 farm bill:


◦ What Is the Farm Bill? An overview available at:
https://crsreports.congress.gov/product/pdf/IF/IF11126
◦ 373-page “summary” available at: https://fas.org/sgp/crs/misc/R45525.pdf

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 4


Farm bill origins in the 1930s
Great Depression
◦ 21.5% of U.S. work force in production agriculture in 1930 (about 2% today)
◦ Farm commodity prices and farm income were extremely low

Policy response: 1933 Agricultural Adjustment Act and other New Deal
legislation
◦ Set policy goal of what became known as parity pricing: prices of 1909-14, adjusted for
inflation
◦ Means included voluntary acreage reduction and government purchases
◦ Targeted 7 “basic commodities”: wheat, corn, cotton, tobacco, rice, hogs and milk
◦ Vestiges of this legislation still exist today, such as 9-month commodity loan program

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 5


U.S. area harvested, 1866-2019
120000000

100000000
Source:
80000000 USDA
National
Million acres

Agricultural
60000000 Statistics
Service
40000000

20000000

0
66 72 78 84 90 96 02 08 14 20 26 32 38 44 50 56 62 68 74 80 86 92 98 04 10 16
18 18 18 18 18 18 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20

Corn Wheat Cotton Soybeans

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 6


Jump forward to 1996 farm bill
New Republican Congress sought deregulation, lower federal spending
◦ Farm bill eliminated annual acreage set asides and many other planting restrictions
◦ Farmers received a fixed payment each year, tied to what was grown previously, but
not to what they planted this year or to commodity prices
◦ Was to last for 1996-2002, with disagreement about what would follow

Subsequent bills have seen some retrenchment from 1996 changes


◦ Payments are again tied to market conditions
◦ But some vestiges of 1996 legislation remain: No annual set asides, most farm bill
payments are tied to fixed bases, not current-year production

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 7


Some context
Roughly 2 million farms by USDA’s definition ($1000 or more in sales in typical year)
From “America’s Diverse Family Farms” a 2018 USDA Economic Research Service publication (
https://www.ers.usda.gov/publications/pub-details/?pubid=90984)
Vast majority are “family farms”
◦ Only 2.2% of farms are “non-family,” meaning operator’s family does not own most of the business
◦ Non-family farms account for 12.6% of value of production
◦ The 88.8% of “small family farms” (under $350,000 in gross cash farm income) account for 25.8% of the
value of production
◦ The 6.3% of “medium family farms” ($350,000-$1 million) account for 22.6%
◦ And the 2.8% of “large family farms” (over $1 million) account for 39.0%

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 8


U.S. cash receipts
2014-2018 annual average, billion dollars
Corn 48

Soybeans 39

Other grains, oilseeds, cotton & hay 31

Fruits, nuts, vegetables & other crops 80

Cattle & calves 71

Poultry & eggs 45


Source: USDA Economic Research
Service, August 2019. Total average
cash receipts: $381 billion
Dairy 39

Hogs & other livestock 28

0 10 20 30 40 50 60 70 80 90
FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 9
U.S. net farm income and
government payments
140

120

100
Billion dollars

80

60

40

20

0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Column1 Government payments
Sources: History through 2018 from USDA ERS, Feb. 2019; projections by FAPRI-MU, April 2019.
FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 10
U.S. net farm income and
government payments: with
new USDA estimates
140
The new USDA projections reflect much
120 lower estimates of 2018 production costs,
100 plus higher 2019 payments due to MFP
Billion dollars

80

60

40

20

0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Column1 Government payments
NFI: New USDA Paym'ts: New USDA
Sources: History through 2018 from USDA ERS, Feb. and Aug. 2019; projections by FAPRI-MU, Apr. 2019.
FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 11
It’s not the 1980s, but…
During the 1980s farm financial crisis, the farm U.S. farm debt/asset ratio
debt/asset ratio peaked at 22% 25%
It declined to half that level in 2012, but has 20%
been increasing since then
15%
Besides lower levels of debts relative to assets,
interest rates are far lower now than in the 10%
1980s
5%
But it is concerning that the debt/asset ratio
continues to increase 0%
9 8 0 98 3 986 98 9 99 2 995 998 001 00 4 007 010 013 01 6 019 022
1 1 1 1 1 1 1 2 2 2 2 2 2 2 2

Debt/asset ratio
Sources: USDA and FAPRI-MU, April 2019

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 12


U.S. food expenditures, farm
product sales and subsidies, 2017
1800 1,616
1600
1400
1200 Data: USDA ERS estimates of consumer food expenditures and
1000 farm product sales in 2017; USDA Food and Nutrition Service FY
2017 outlays; USDA estimates of direct government payments to
800
farmers in 2017 plus crop insurance premium subsidies
600 374
associated with the 2017 crop.
400
Billion dollars

200 99 18
0

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 13


A few facts about the 2018 farm bill
Official title: Agriculture Improvement Act of 2018
Final version passed with strong bipartisan majorities
◦ Senate passed on Dec. 11, 2018 on 87-13 vote
◦ House passed on Dec. 12, 2018 on 369-47 vote

This came after a long process


◦ Original House bill failed on first vote, 198-213, in May 2018
◦ Many issues, but provisions tightening SNAP work requirements most controversial

Bill covers 2019-2023 crops


◦ Different expiration dates for different programs
◦ But some programs end at the end of fiscal year 2023 (Sep. 30, 2023)

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 14


Titles of the 2018 farm bill
I. Commodities VII. Research
II. Conservation VIII. Forestry
III. Trade IX. Energy
IV. Nutrition X. Horticulture
V. Credit XI. Crop insurance
VI. Rural development XII. Miscellaneous
Source: https://www.agriculture.senate.gov/imo/media/doc/CRPT-115hrpt1072.pdf

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 15


What’s not in the farm bill
Child nutrition programs (school lunch, WIC, etc.)—authorized
separately
Other policies affecting agriculture
◦ Biofuel mandates
◦ Environmental regulations
◦ Tax policies
◦ Much more

Actual appropriations to spend money on “discretionary”


programs
◦ Often farm bill gives authority to appropriate funds
◦ But actual appropriation done annually
FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 16
CBO-projected spending under the
2018 farm bill
Net outlays from FY 2019 to FY 2028, billion dollars

Nutrition 664

Nutrition programs (primarily


Crop insurance 78 SNAP) account for 77% of
projected mandatory farm bill
Conservation 60 spending over the next ten years.

Discretionary spending
Commodity programs 61 authorized by the farm bill (not
shown here) requires annual
appropriations.
All other 4

0 100 200 300 400 500 600 700

Source: CBO estimates, April 9, 2018 and Dec. 11, 2018

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 17


SNAP participation and average
benefits (fiscal years)
Average monthly participants Average monthly benefits per person
60 160

140 134 134 133 133


50 46.6 47.6 46.7 45.8 125 125 127 125 126 127
44.7 44.2
42.2 120
40.3 39.7
40 102
Million participants

33.5
100 96

Dollars
30 26.3 28.2 80

60
20
40
10
20

0 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: USDA FNS reports (https://www.fns.usda.gov/pd/supplemental-nutrition-assistance-program-snap)

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 18


A few crop insurance basics
Purely private insurance against hail and other specific risks has long been
available
Federally subsidized “multi-peril crop insurance” (MPCI)
◦ Good against wide range of natural disasters
◦ Covers many crops—not just corn and soybeans, but apples, tomatoes, walnuts…
◦ Offered through private insurers
◦ Government pays large part (~63%) of premium
◦ Crop insurance companies get a subsidy to deliver the product
◦ They can also make underwriting gains, if total indemnity payments for the policies they
retain are less than total premiums (including subsidies)

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 19


Main types of crop insurance
Until 1990s, crop insurance only covered yield losses
◦ Payments occurred if actual yields were sufficiently below a normal yield for a farm

Revenue-based insurance is now the most common


◦ Many options, each with own rules, but all are based on both prices and yields—pay if
revenues declined below a trigger
◦ Revenue Protection (the most popular) pays if harvest revenue (harvest time national price
times farm level yield) is less than a trigger
◦ Trigger is the higher of planting- or harvest time national price, multiplied by an average of
past yields on the farm, multiplied by the percentage cover (e.g., 80%)
◦ Farmers pay a share (on average, about 37%) of the premium; the rest is subsidized

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 20


Crop insurance: U.S. data
20000
Cumulative net
18000
indemnities from 2010
16000 to 2018: $42 billion Source: RMA
($4.7 billion per year) Summary of
14000
Business (
Billion dollars

12000 http://www.rma.usda
.gov/data/sob.html
10000 ) data as of 9/9/19.

8000 Net indemnity


payments =
6000
indemnity payments
4000 for losses minus
producer-paid
2000 premiums.

0
2010 2011 2012 2013 2014 2015 2016 2017 2018

Producer-paid premiums Indemnity payments Net indemnities

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 21


ARC and PLC
2014 farm bill created two new commodity (not crop insurance) programs
◦ Price loss coverage (PLC) makes payments when national marketing-year average prices
fall below a fixed reference price
◦ Agriculture risk coverage (ARC) makes payments when county-level revenues for a crop
fall below a trigger tied to past national prices and county yields
◦ Both programs make payments tied to base acreage (fixed, at least for life of farm bill,
based on past production on the farm ), not what’s planted this year
◦ For each crop on their farm, producers had to make a one-time choice of ARC or PLC for
the 2014-18 life of the 2014 farm bill (multiple choices under 2018 farm bill)
◦ More than 90% of corn and soybean base is in ARC; PLC dominates for many other crops;
neither program was available until 2018 for cotton

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 22


Potential PLC payments: Corn
Corn PLC payments Corn prices
◦ Occur if marketing year average prices are less
8
than the $3.70/bu. reference price
7
Under the 2014 farm bill (2014-2018): 6

Dollars per bushel


◦ Payments from 2015-2017, likely in 2018 5
◦ Few corn acres were enrolled in PLC 4 Sources: 2014
and 2018 farm
Under the 2018 farm bill (2019-2023): 3 bills, FAPRI-MU
2 Aug. 2019
◦ At FAPRI-projected prices, payments would baseline update
occur every year 1
◦ Actual prices will differ—payments could be 0
zero or quite large

11

17

23
13

15

19

21
20

20

20
20

20

20

20
◦ We expect a big increase in PLC enrollment
FAPRI MYA price
Reference

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 23


Agriculture Risk Coverage (ARC)
Makes payments when revenues fall below a trigger
◦ Benchmark is 5-year Olympic average of national marketing year prices times 5-year Olympic
average of yields (county or farm)
◦ Makes payments when current revenues fall below 86% of the benchmark
◦ Payments on 85% of base (not planted) acreage if choose county version (ARC-CO); 65% if
choose farm version (ARC-IC)
◦ Maximum payment is 10% of benchmark
◦ As with PLC, payments generally do NOT depend on current production choices
◦ Except for those with fruits and vegetables, planting more or less of a given crop will have NO
effect on payments

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 24


2018/19 ARC-CO calculation example
Boone Co., MO corn
Max of (national County yield Revenue
avg. farm price, (bu./acre) (per acre)
reference price) Final figures for
2013/14 $4.46 129 2018/19 are not
2014/15 $3.70 188 available, but
likely to be
2015/16 $3.70 ($3.61) 123 around
2016/17 $3.70 ($3.36) 172 $3.60/bu. for
2017/18 $3.70 ($3.36) 170 the national
price and 150
Olympic average $3.70 157
bu./a. for the
2018/19 benchmark revenue $581 county yield, so
86% of benchmark $500 no payments
1st option triggering payments $3.60 <139 <$500 are likely in
Boone Co.
2nd option triggering payments <$3.33 150 <$500

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 25


Average payment rates by farm bill
2014-18 and 2019-23 projections by FAPRI-MU, April 2019
Projected ARC Projected PLC Share of base in Share of base in
payment/base a. payment/base a. ARC PLC
Corn 2014-18 avg. $26 $17 93% 7%
Corn 2019-23 avg. $12 $28 29% 71%

Soybeans 2014-18 $8 $1 97% 3%


Soybeans 2019-23 $10 $13 32% 68%

Wheat 2014-18 $13 $19 56% 44%


Wheat 2019-23 $7 $19 20% 80%

Source: FAPRI-MU stochastic projections from April 2019. The projected participation rates
assume that expected payment rates have a strong effect on participation decisions.
FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 26
Other commodity programs
Dairy: insurance-like program that makes payments when the margin between
milk and feed prices is small
Sugar: Price supports, import restrictions (U.S. price is above world market)
Note that except for dairy, commodity programs are for major field crops—no
basic commodity program for cattle, hogs, chickens, nor for fruits and vegetables
Those “other commodities” do qualify for some other farm bill programs
◦ Crop insurance covers many (not all) fruits and vegetables
◦ Disaster programs are available for livestock producers
◦ Marketing support and research programs available for many commodities

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 27


Putting these programs in context:
U.S. average returns to corn producers
2013 (2008 bill) 2014 2015 2016 2017 2018
Value of crop sales (price $705 $633 $608 $587 $593 $635
times yield), per acre
Direct payments/base acre $24 n.a. n.a. n.a. n.a. n.a.
ARC/base acre for ARC
participants n.a. $41 $48 $37 $10 $4
PLC/base acre for PLC
participants n.a. $0 $9 $33 $34 $10
Marketing loan benefits/acre $0 $0 $0 $0 $0 $0
Crop insurance net
indemnities/acre $42 $26 $3 -$4 $0 $2

Source: FAPRI-MU estimates, August 2019. Figures for 2013-2017 are based on
USDA data; 2018 is a FAPRI-MU estimate and is not final.

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 28


Conservation programs in the
farm bill
Conservation reserve program pays farmers to idle land for 10-years or more
◦ About 22 million acres in the CRP today, avg. rental rate of $81/acre
◦ Farm I grew up on is currently in the CRP, used for hunting

Environmental Quality Incentive Program pays for environmental improvements


◦ Shares costs with producers for approved practices

Conservation Stewardship Program rewards environmental stewardship


◦ Payments for complying with conservation plan

Agricultural Conservation Easements cover variety of purposes


◦ Wetland and farmland easements to stop development

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 29


Some USDA conservation programs
FY 2018 outlays FY 2022 projection
Conservation Reserve Program $1.95 bil. $2.02 bil.
(CRP)
Environmental Quality Incentive $1.39 bil. $1.68 bil.
Program (EQIP)
Conservation Stewardship $1.41 bil. $1.35 bil.
Program (CSP)
Ag. Conservation Easement (ACE) $0.37 bil. $0.44 bil.
All other mandatory programs $0.14 bil. $0.36 bil.
Total USDA mandatory $5.04 bil.* $5.76 bil.*
conservation programs

*Totals are less than the sum of the parts, because the program amounts are before payment
reductions because of “sequestration” (around 7% on affected programs). Source: Congressional
Budget Office, January 2019. Projections for FY 2022 incorporate provisions of the 2018 farm bill.

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 30


Farm bill politics
Historically, farm bill politics was often more regional than partisan
House is tied to demographics
◦ Most rural House districts have Republican representatives
◦ But most districts are not rural districts—relatively few House members have
significant number of farmers in their districts
The Senate is different
◦ Almost all states have some farming, so almost all Senators have some interest in the
“farm” part of the farm bill, and 2 senators each for ND and CA
◦ Filibuster rules effectively mean bipartisan support needed for most legislation

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 31


Market Facilitation Program
USDA has offered two rounds of “Market Facilitation Program” payments to
producers to compensate for lost trade due to foreign retaliatory tariffs
◦ First round: Payments per unit produced in 2018 (e.g., $1.65/bu. for soybeans, much
less for other crops; payments per head for hogs and per cwt for milk)
◦ Second round: Payment per acre planted in 2019 (payment rates of $15-$150 per
acre depending on the county; separate payments for hogs, milk, specialty crops)
◦ Program was created using authority of the Charter Act of the Commodity Credit
Corporation—not a farm bill program passed by Congress
◦ So far, $8.6 billion under the first round; announced USDA estimate is $14.5 billion for
the second round

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 32


FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 33
Comparing annual average crop
program benefits under recent
farm bills: Title I
7000
6000
5000
4000
3000
2000
Billion dollars

1000
0 Mkt. loan
ACRE & ARC
CCP & PLC
Direct payment

Crop years/source of estimate


Sources: USDA FSA for 2008-2017; Apr. 2019 FAPRI-MU estimates for 2018; CBO & FAPRI-MU for 2019-23.
FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 34
Comparing annual average crop
program benefits: adding crop
insurance
14000
12000
10000
8000
6000
4000
Billion dollars

2000 Crop ins. net ind.


0 Mkt. loan
ACRE & ARC
CCP & PLC
Direct payment

Crop years/source of estimate


Note: Crop insurance data are net indemnities (indemnities for losses minus producer-paid premiums.
FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 35
Comparing annual average crop
program benefits: adding 2018
MFP payments
25000
20000
15000
10000
Billion dollars

5000 MFP
0 Crop ins. net ind.
Mkt. loan
ACRE & ARC
CCP & PLC
Direct payment

Crop years/source of estimate


Note: MFP payments shown are for 2018 only. USDA estimates second round will total $14.5 billion.

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 36


Comparing annual average crop
program benefits: adding
conservation payments
25000
20000
15000
10000
Conservation
Billion dollars

5000
MFP
0 Crop ins. net ind.
Mkt. loan
ACRE & ARC
CCP & PLC
Direct payment

Crop years/source of estimate


Note: Conservation payments are calendar year figures as reported in ERS farm income estimates.
FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 37
A few summary points
The farm bill is important to many farmers and the country
◦ After major changes in 2014, the 2018 bill was an “evolutionary” bill
◦ Trade issues and trade compensation programs may have larger impact today
◦ Compared to 2010-13, when farm income was much higher, payment programs and
crop insurance again account for a significant share of farm income
Outlook, as always, is uncertain, but there are continued challenges ahead for
farm finances, even if trade disputes are resolved

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 38


Thanks!
FAPRI-MU website: www.fapri.missouri.edu
Follow us on Twitter: @FAPRI_MU
To contact Pat Westhoff:
• 1-573-882-4647
• westhoffp@missouri.edu
• @WesthoffPat on Twitter

This material is based upon work supported by the U.S. FAPRI-MU team:
Department of Agriculture, Office of the Chief Economist,
under Agreement #58-0111-18-024, and the USDA National
• Julian Binfield
Institute of Food and Agriculture, Hatch project number MO- • Sera Chiuchiarelli
HASS0024. Any opinion, findings, conclusions, or • Scott Gerlt
recommendations expressed in this publication are those of • Hoa Hoang
the authors and do not necessarily reflect the view of the U.S.
Department of Agriculture nor the University of Missouri. • Lauren Jackson
• Seth Meyer
• Wyatt Thompson 39
Some extra slides…

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 40


PLC payment formula
PLC payment formula:
◦ Max(0 or the reference price minus max(national season average price or the loan rate))
◦ Multiplied by base acreage for the commodity on the farm
◦ Multiplied by PLC yield for the commodity on the farm
◦ Multiplied by 0.85

Things to note
◦ Reference price and loan rate are set by law
◦ National season average price is based on sales between Sep. 1 and Aug. 31 for corn and soybeans
◦ Base acreage and PLC yield were fixed for 2014-2018 crops (2018 bill allows partial yield update for some
producers, but base acreage remains fixed)

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 41


Potential PLC payments:
Soybeans
Soybean PLC payments
Soybean prices
◦ Occur if marketing year average prices are less
16
than the $8.40/bu. reference price
14
Under the 2014 farm bill (2014-2018): 12

Dollars per bushel


◦ No payments have occurred (2018 unlikely) 10
◦ Few soybean acres were enrolled in PLC 8 Sources: 2014
and 2018 farm
Under the 2018 farm bill (2019-2023): 6 bills, FAPRI-MU
4 Aug. 2019
◦ At FAPRI-projected prices, payments would baseline update
occur in 2020 and 2021 2
◦ Actual prices will differ—payments could be 0
zero or quite large

11

17

23
13

15

19

21
20

20

20
20

20

20

20
◦ We expect some increase in PLC enrollment
FAPRI MYA price
Reference

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 42


Potential PLC payments: Wheat
Wheat PLC payments Wheat prices
◦ Occur if marketing year average prices are less
9
than the $5.50/bu. reference price
8
Under the 2014 farm bill (2014-2018): 7

Dollars per bushel


◦ Payments from 2015-2018 (2016: $1.61/bu.) 6
◦ A little under half of wheat base was in PLC 5
Sources: 2014
4 and 2018 farm
Under the 2018 farm bill (2019-2023): 3 bills, FAPRI-MU
Aug. 2019
◦ At FAPRI-projected prices, payments would 2 baseline update
occur every year 1
◦ Actual prices will differ—payments could be 0
zero or quite large

11

17

23
13

15

19

21
20

20

20
20

20

20

20
◦ We expect a big increase in PLC enrollment
FAPRI MYA price
Reference

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 43


2014-18 average payment rates
FAPRI-MU projections from March 2015 and April 2019
Projected ARC Projected PLC Actual share of Actual share of
payment/base a. payment/base a. base in ARC base in PLC
Corn 2015 proj. $27 $20 93% 7%
Corn 2019 proj. $26 $17

Soybeans 2015 $17 $10 97% 3%


Soybeans 2019 $8 $1

Wheat 2015 $11 $14 56% 44%


Wheat 2019 $13 $19

Sources: FAPRI-MU stochastic projections from March 2015 and April 2019. The 2015 projections were discussed in a 2015 Choices article by Westhoff &
Glauber, available at http://www.choicesmagazine.org/choices-magazine/submitted-articles/farm-program-elections-budget-costs-and-the-wto

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 44


2014-18 average payment rates
FAPRI-MU projections from March 2015 and April 2019
Projected ARC Projected PLC Actual share of Actual share of
payment/base a. payment/base a. base in ARC base in PLC
Corn 2015 proj. $27 $20 93% 7%
Corn 2019 proj. $26 $17 We’re not this good--there was a
lot of luck involved

Soybeans 2015 $17 $10 97% 3%


Soybeans 2019 $8 $1

Wheat 2015 $11 $14 56% 44%


Wheat 2019 $13 $19

Sources: FAPRI-MU stochastic projections from March 2015 and April 2019. The 2015 projections were discussed in a 2015 Choices article by Westhoff &
Glauber, available at http://www.choicesmagazine.org/choices-magazine/submitted-articles/farm-program-elections-budget-costs-and-the-wto

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 45


2014-18 average payment rates
FAPRI-MU projections from March 2015 and April 2019
Projected ARC Projected PLC Actual share of Actual share of
payment/base a. payment/base a. base in ARC base in PLC
Corn 2015 proj. $27 $20 93% 7%
Corn 2019 proj. $26 $17

Soybeans 2015 $17 $10 97% 3%


Soybeans 2019 $8 $1
Wheat is the one major crop where elections
didn’t reflect our expected payments
Wheat 2015 $11 $14 56% 44%
Wheat 2019 $13 $19

Sources: FAPRI-MU stochastic projections from March 2015 and April 2019. The 2015 projections were discussed in a 2015 Choices article by Westhoff &
Glauber, available at http://www.choicesmagazine.org/choices-magazine/submitted-articles/farm-program-elections-budget-costs-and-the-wto

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 46


Switching gears to talk about trade issues:
China’s agricultural imports from the U.S.
Between 2010 and 2017, China’s imported an 30

annual average of: 25

• $21.6 billion of U.S. agricultural products 20

Billion dollars
15
• $12.6 billion of U.S. soybeans (58% of total)
10
• $3.2 billion of U.S. cotton, sorghum, corn, wheat,
rice, and other program crops (15%) 5

0
• $5.8 billon of other U.S. agricultural products 2010 2011 2012 2013 2014 2015 2016 2017 2018
Soybeans Other program crops
China’s ag. imports from the U.S. fell to $9.2 billion All other

in calendar year 2018 Source: USDA FAS GATS, accessed March 17, 2019

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 47


Implications of China’s soybean
tarif
Note: this slide dates from July 2018
New 25% tariff on imports of U.S. soybeans…
◦ Pushes up prices of U.S. soybeans delivered to final users in China
◦ Pushes down prices of soybeans in the U.S.

These changes in U.S. and Chinese domestic soybean prices…


◦ Discourage sales of U.S. soybeans to China
◦ Encourage sales to China of soybeans from Brazil, Argentina and other exporters

Soybean prices in other exporting countries…


◦ Probably will increase because of higher prices in China, their major market
◦ Which will discourage competitor sales to the EU and other importers
◦ And encourage U.S. exports to those same destinations

Thus, much of the effect will be to rearrange global soybean trade patterns
FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 48
U.S. soybean trade before and after China
imposed tarifs on U.S. imports (mil. tons)
2016/17 Sep.-Aug. 2017/18 Sep.-Aug. 2017/18 Sep.-Jun. 2018/19 Sep.-Jun.
Exports to China 36.1 28.2 27.9 8.7
All other exports 22.8 29.9 23.4 30.3
Total exports 59.0 58.1 51.3 39.0

Average farm price $9.47 $9.33 $9.49 $8.46

Sources: USDA FAS GATS; USDA NASS (September-June prices for 2017/18 and 2018/19 are simple averages
of monthly prices).

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 49