Transcript The outlook for crops (and biofuels and policy and…)

Pat Westhoff ([email protected])
FAPRI at the University of Missouri
(www.fapri-mu.org)
Session on “Policy Options and
Consequences for the 2012 Farm Bill”
AAEA meetings
Pittsburgh, July 26, 2011

What the world looks like if a new farm bill
simply continues current provisions
 Commodity markets
 Government program costs
 Farm income

How the debt limit debate could change
things, with update from bills just filed last
night
Cotton
900
900
800
800
700
700
Gov't
payments
500
400
Market
sales
300
Variable
expenses
200
600
400
Market
sales
300
Variable
expenses
200
100
100
0
0
2000/01
2002/03
2004/05
2006/07
2008/09
2010/11
Gov't
payments
500
2000/01
2002/03
2004/05
2006/07
2008/09
2010/11
600
Dollars per acre
Dollars per acre
Corn
Source: FAPRI-MU baseline, January 2011. Payments include direct payments, marketing loan benefits,
countercyclical payments and ACRE payments. Assumes one acre of base for each acre planted and harvested.
FAPRI, USDA, CBO
projections all show
wheat, feed grain and
soybean prices
remaining well above
target prices and pre2007 levels
Corn prices and policies
6
5
4
3
2
1
0
2002/03
2004/05
2006/07
2008/09
2010/11
2012/13
2014/15
2016/17
2018/19
2020/21

Current prices are well
above levels that would
trigger marketing loan
benefits or
countercyclical
payments
Dollars per bushel

Farm price
Target price
Loan rate
Source: FAPRI-MU baseline, January 2011. USDA’s July estimate of 2011/12 prices: $5.50-$6.50 per bushel
2010/11
(USDA, July)
2011/12
(USDA, July)
2012-20 average
(FAPRI-MU, Mar.)
$5.15 - $5.35
$5.50 - $6.50
$4.72
$11.35
$12.00 - $14.00
$11.59
Wheat per bu.
$5.70
$6.60 - $8.00
$5.54
Upland cotton per lb.
$0.82
$0.90 - $1.10
$0.74
$12.50
$13.20 - $14.20
$13.03
Corn per bu.
Soybeans per bu.
Rice per cwt
Sources: USDA’s World Agricultural Supply and Demand Estimates, July 2011 and FAPRIMU’s US Baseline Briefing Book, March 2011.
Note: FAPRI-MU plans to prepare a baseline update after August crop reports are
released.
U.S. corn yield
Average
#1
#479
Average
#1
#479
20/21
18/19
16/17
14/15
12/13
10/11
08/09
200
190
180
170
160
150
140
130
120
06/07
20/21
18/19
16/17
14/15
12/13
10/11
08/09
Bushels per acre
180
160
140
120
100
80
60
40
20
0
06/07
Dollars per barrel
Refiners’ acquisition price
Corn price
7
7
6
6
Dollars per bushel
Dollars per bushel
Corn price
5
4
3
2
1
0
5
4
3
2
1
0
Actual
#1
#479
Average
90%
10%
500
120
450
100
350
Billion dollars
Billion dollars
400
300
250
200
150
100
80
60
40
20
50
0
0
2002 2006 2010 2014 2018
Gross income
Expenses
Sources: FAPRI-MU 2011 baseline
2002 2006 2010 2014 2018
Net farm income
2001-10 average
2011-20 average
Direct payments
5.01
4.87
Marketing loan net outlays
2.49
0.18
Countercyclical payments
1.50
0.19
ACRE payments
0.05
0.62
Crop market loss assistance
0.51
0.00
9.56
5.86
Crop insurance indemnities
4.06
9.04
Producer-paid premiums
2.23
4.07
Crop insurance net indemnities
1.84
4.97
Sub-total
Source: Update of “Crop Insurance: Background Statistics on Participation and Results,” FAPRI-MU report #1010, Table 1 (http://www.fapri.missouri.edu/outreach/publications/2010/FAPRI_MU_Report_10_10.pdf), using
Jan. 2011 FAPRI-MU stochastic baseline figures.
25
Billion dollars
20
15
Net indemnities
CCP/MLB/MLA/ACRE
10
Direct payments
5
0
2001
2004
2007
2010 2013
Crop year
2016
2019
Projections based on FAPRI-MU 2011 stochastic baseline
Corn
Soybeans
Wheat
Cotton
Rice
Crop insurance net
indemnities/acre
20.65
9.58
18.33
35.43
7.44
Marketing loan/acre
0.00
0.10
0.24
13.07
2.47
ACRE payments/acre
2.44
2.96
2.08
0.01
0.00
23.47
11.12
14.73
33.66
96.05
0.00
0.07
0.40
6.28
2.37
Total/acre or base acre
46.56
23.83
35.78
88.45
108.33
Net indemnities/total
44%
40%
51%
40%
7%
Direct payments/base a.
Countercyclical
payments/base acre
Source: Update of “Crop Insurance: Background Statistics on Participation and Results,” FAPRI-MU report #1010, Table 2 (http://www.fapri.missouri.edu/outreach/publications/2010/FAPRI_MU_Report_10_10.pdf), using
Jan. 2011 FAPRI-MU stochastic baseline figures.
1200
1000
800
Crop insurance
600
Commodity programs
Market sales
400
200
0
Corn
Soybeans Wheat
Cotton
Rice
Note: Assumes one acre
of base for each acre
harvested. In reality,
base acreage can be
very different than
harvested acreage.
Source: Update of “Crop Insurance: Background Statistics on Participation and Results,” FAPRI-MU report #1010, Table 2 (http://www.fapri.missouri.edu/outreach/publications/2010/FAPRI_MU_Report_10_10.pdf) using
Jan. 2011 FAPRI-MU stochastic baseline figures.
FY 2012-FY2021 net outlays
Commodity programs
$61 billion
Crop insurance
$77 billion
Conservation programs
$63 billion
Supplemental Nutrition Assistance Program
$691 billion
Child nutrition programs
$241 billion
Notes: Estimates for farm and conservation programs are from CBO’s March 2011 baseline, and the nutrition
program estimates are from CBO’s January 2011 baseline.
Commodity Credit Corporation net outlays include commodity programs, export programs, one major
conservation program (the conservation reserve program) and some other miscellaneous programs. CBO
projects that net CCC outlays will total $97 billion over the FY 2012-FY 2021 period.
Mandatory conservation program spending includes $39 billion in Natural Resources Conservation Service
programs (EQIP, CSP, WRP, etc.) and $24 billion in CCC-funded programs (mostly CRP).
Crop insurance spending by the Federal Crop Insurance Corporation reflects both premium subsidies to
agricultural producers and program delivery costs.

Policy outlook
 Current debt limit debate could be critical
 Ethanol tax credit ($0.45/gallon) due to expire at
end of 2011, proposals to eliminate immediately
 Major choices could be made long before 2012
farm bill is written


Could see changes in farm programs in the next
week or at least by end of 2011
Reid proposal from last night
 Effective in 2012, make direct payments on 59% of
base, down from current 85% (a 30% reduction)
 This would reduce direct payments by about $1.5
billion per year
 ACRE participation may increase if direct payments
reduced
 Net budgetary saving likely to be a little over $10
billion over FY 2012-2021 (summary of Reid says $10$15 billion)

Boehner proposal from last night
 No immediate changes in farm programs (I think)
 But commitment to vote on a bill cutting
mandatory spending by year end
 House has previously agreed to budget for large
cuts in farm, conservation and nutrition programs


Not clear which (if either) approach will be
followed
But significant chance farm programs could
change before the end of 2011

Average 2012-20
impact compared
to current law
Only modest impacts
on commodity markets
Commodity prices


<2% change
Bigger impacts on
farm income, farm
program outlays, land
values
Farm program
payments
-$2.0 billion to
-$4.6 billion
Net farm income
-$1.9 billion to
-$3.2 billion
Farm real estate
values
-1.8% to
-2.7%
See FAPRI-MU report
#08-11 at our website,
www.fapri-mu.org
Consumer food
expenditures
<0.1% change
Note: Ranges reflect different assumptions about
whether producers would choose to enroll in the
ACRE program if direct payments are eliminated.

The proposed legislation
 Senate: S.1323 (http://www.washingtonpost.com/r/2010-
2019/WashingtonPost/2011/07/26/National-Politics/Graphics/Boehnerplan.pdf)
 House: Amendment to S.627
(http://www.washingtonpost.com/r/20102019/WashingtonPost/2011/07/26/National-Politics/Graphics/reidplan.pdf)
 Yes, they are mislabeled by the Washington Post

FAPRI-MU website: www.fapri-mu.org

To contact me:
 573-882-4647
 [email protected]