Transcript Slide 1

Economic Considerations
Oilseed Workshop
Plainview, TX -- December 10, 2008
Wichita Falls, TX -- December 11, 2008
Steven L. Klose
Financial And Risk Management Assistance
Department of Agricultural Economics
Texas AgriLife Extension Service
The Texas A&M University System
Overview

Oilseeds in the 2008 Farm Bill







Crop Insurance Options




Direct Payments
Loan Rates
CCP
ACRE
SURE
Payment Limits
APH / CAT
RA
NAP
On-farm Biodiesel Production?
2008 Farm Bill

Significant Changes




ACRE
SURE
Payment Limits
Similar to 2002 Farm Bill



Direct Payments
Loan Rate
Counter-Cyclical Payments
Other or Minor Oilseeds

Considered “Covered Commodities”









Sunflower seed
Rapeseed
Canola
Safflower
Flaxseed
Mustard seed
Crambe
Sesame seed
Or any oilseed designated by the Secretary
Direct Payments
Crops
2002 Farm Bill
2008 Farm Bill
Corn ($/bu)
0.28
0.28
Sorghum ($/bu)
0.35
0.35
Wheat ($/bu)
0.52
0.52
0.0667
0.0667
Rice ($/cwt)
2.35
2.35
Barley ($/bu)
0.24
0.24
0.024
0.024
Soybeans ($/bu)
0.44
0.44
Minor Oilseeds ($/cwt)
0.80
0.80
36
36
Upland Cotton ($/lb)
Oats ($/bu)
Peanuts ($/ton)
Direct Payments

No Change in Payment Rates


Payment Fraction



$0.80/ cwt for oilseeds
0.85 for 2008 and 2012
0.833 for 2009-2011
Payment Timing



22% advance available Dec. 1
No advance on the 2012 crop
Full Payment not before Oct. 1
Loan Rates
Crops
2002 Farm Bill
2008 Farm Bill
2007
2008
2009
2010-12
Corn ($/bu)
1.95
1.95
1.95
1.95
Sorghum ($/bu)
1.95
1.95
1.95
1.95
Wheat ($/bu)
2.75
2.75
2.75
2.94
Upland Cotton ($/lb)
0.52
0.52
0.52
0.52
Rice ($/cwt)
6.50
6.50
6.50
6.50
Barley ($/bu)
1.85
1.85
1.85
1.95
Oats ($/bu)
1.33
1.33
1.33
1.39
Soybeans ($/bu)
5.00
5.00
5.00
5.00
Other Oilseeds ($/cwt)
9.30
9.30
9.30
10.09
Dry Peas ($/cwt)
6.22
6.22
5.40
5.40
Lentils ($/cwt)
11.72
11.72
11.28
11.28
Small Chickpeas ($/cwt)
7.43
7.43
7.43
7.43
Large Chickpeas ($/cwt)
n/a
n/a
11.28
11.28
355.0
355.0
355.0
355.0
Peanuts ($/ton)
Target Prices
Crops
2002 Farm Bill
2008 Farm Bill
2007
2008
2009
2010-12
Corn ($/bu)
2.63
2.63
2.63
2.63
Sorghum ($/bu)
2.57
2.57
2.57
2.63
Wheat ($/bu)
3.92
3.92
3.92
4.17
Upland Cotton ($/lb)
0.724
0.7125
0.7125
0.7125
Rice1 ($/cwt)
10.50
10.50
10.50
10.50
Barley ($/bu)
2.24
2.24
2.24
2.63
Oats ($/bu)
1.44
1.44
1.44
1.79
Soybeans ($/bu)
5.80
5.80
5.80
6.00
10.10
10.10
10.10
12.68
Dry peas ($/cwt)
n/a
n/a
8.32
8.32
Lentils ($/cwt)
n/a
n/a
12.81
12.81
Small Chickpeas ($/cwt)
n/a
n/a
10.36
10.36
Large Chickpeas ($/cwt)
n/a
n/a
12.81
12.81
495.0
495.0
495.0
495.0
Other Oilseeds ($/cwt)
Peanuts ($/ton)
Counter-Cyclical Payments


CCP Rate = TP – [ Max(MP,LR) + DP ]
Payment Fraction

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
0.85 for 2008 and 2012
0.833 for 2009-2011
Payment Timing



40% advance available 180 days after marketing year starts
No advance available starting 2011 crop year
Full or remaining payment made not before Oct. 1
Counter-Cyclical Payments

Maximum CCP For Oilseeds
Max CCP = TP – (LR + DP)

Through 2009:
$10.10 – ($9.30 + $0.80) = zero

2010-2012:
$12.68 – ($10.09 + $0.80) = $1.79
ACRE Program

Irrevocable Election beginning 2009

Current program
or


ACRE + 80%DP + 70%LR
Choice by Farm Number
Average Crop Revenue Election
State ACRE Guarantee = 90%
* 5-Year Olympic State Avg. Yield *
2-year Natl. Average Mkt. Yr.
Price
State Revenue =
> Actual
Actual State Planted Acre Yield *
MAX[ Natl. Average Mkt. Yr. Price OR
70% Loan Rate]
Restricted to < 10% change/year
AND
Farm ACRE Benchmark =
Farm's 5-Year Olympic Avg. Yield *
2-year Natl. Average Mkt. Yr.
Price + Ins Premium
>
Actual Farm Revenue =
Actual Farm’s Planted Acre Yield *
MAX[ Natl. Average Mkt. Yr. Price OR
70% Loan Rate]
THEN
Farm Payment = 0.833 (0.85 in 2012) * Actual Planted or Considered Planted Acres *
[ Farm's 5-Year Olympic Average Yield / State’s 5-year Olympic Average Yield ] *
MIN[ (State ACRE Guarantee – Actual State Revenue) OR State ACRE Guarantee * 25%]
Note: All Yields are Planted Acre Yields
Average Crop Revenue Election
(ACRE) Payment (Cont.)

Enrollment cannot exceed base acres on the farm
Option to choose planted acres to enroll in ACRE

Bill reads as if LR reduction applies to entire farm

Provisions for assigning yields, etc.

Provisions for determining whether a state will have both irrigated
and non-irrigated state guarantees
If a state has at least 25% of the acres of a crop that are irrigated
and at least 25% of the acres of the crop that are non-irrigated then
Secretary shall calculate separate irrigated and non-irrigated ACRE
program guarantees
Texas Planted Acres
5 Year Average
(2003-07)
2007
Irrigated
Non-Irr
Irrigated
Non-Irr
Corn
46%
54%
51%
49%
Peanuts
90%
10%
93%
7%
Cotton
38%
62%
38%
62%
Grain Sorghum 22%
78%
24%
76%
Soybeans
20%
80%
21%
79%
Wheat
17%
83%
16%
84%
Average Crop Revenue Election
Sunflower Example
Planted
Acres
Yield
(lbs.)
Price
($/lbs.)
2003
59,000
1,193
0.1210
2004
41,000
1,366
0.1370
2005
145,000
1,354
0.1210
2006
52,000
410
0.1450
2007
41,000
1,300
0.2130
5-Year Olympic Average (2003-07)
2-Year Avg. Price (2006-07)
State Acre Guarantee
Revenue
1,282
0.179
$206.53
Average Crop Revenue Election
Sunflower Example
State Acre Guarantee
$206.53
State Actual Revenue
$186.53
Payment Available
$20
Not to exceed: $51.63 ( 25% of $206.53 )
Farm Yield
1000
5-Year Olympic Average (2003-07)
State Yield
Ratio
0.78
1,282
5-Year Olympic Average (2003-07)
If Farm is eligible:
Farm Payment / acre
0.833 x 0.78 x $20
$12.99
Supplemental Revenue
Assurance (SURE) Program


Whole farm program
Requires at least CAT or NAP purchase on all crops


Except following a prevented planting or failed crop
Except crops that are not of economic significance
(NAP fee > 10% of NAP coverage) or Crop value of roughly $9,100 or less

Payment requires disaster declaration or 50% loss
Requires a minimum 10% production loss on at least one crop of economic
significance

SURE Calculations


SURE Guarantee is 115% of crop insurance coverage for all crops
(capped at 90% of expected revenue for all crops)

Revenue to Count for all crops =
crop value + indemnities + 15% of DP + all other Gov. Pmts.

SURE Payment = (Guarantee – Revenue to Count) x 60%
Payment Limits



Continue $40,000 limit on DP
and $65,000 on CCP and ACRE
Loan Deficiency Payments not limited
Change to Direct Attribution (Eliminate 3-entity rule)




If one spouse is actively engaged, then both are eligible
Payment for children under 18 are attributed to parents
Will trace through 4 levels of ownership
Replace $2.5 million AGI limitation


A person with over $500,000 in nonfarm AGI will be ineligible
A person with over $750,000 in adjusted gross farm income will be
ineligible for direct payments
Farm Bill Changes to
Crop Insurance

Farm Bill Cost Savings Created




Reduce Loss ratio to 1.0 from 1.075
Modified reimbursement rate
Increased CAT / NAP fees
Timing shifts
Crop Insurance &
Risk Management Options

Crop Insurance




APH
RA
NAP
Acreage Contracts
Sunflower Crop Insurance
APH and Revenue Assurance
Dallam
Sherman
Hartley
Moore
Hutchinson Roberts Hemphill
Oldham
Potter
Carson
Deaf Smith
Randall
Armstrong
Hansford
Ochiltree Lipscomb
Gray
Parmer Castro Swisher Briscoe
Bailey
Lamb
Hale
Floyd
Wheeler
Donley Collingsworth
Hall
Childress
Motley Cottle
Cochran Hockley Lubbock Crosby Dickens
King
Hardeman
Foard Wilbarger Wichita
Knox
Baylor
Archer
Hudspeth
Montague
Cooke
Grayson Fannin
Lamar Red River
Bowie
Titus
Franklin Morris
Cass
Hunt Hopkins
Yoakum Terry
Lynn Garza
Camp
Rockwall
Rains
Wood Upshur Marion
Dallas
Tarrant
Palo
Parker
Gaines
Dawson Borden Scurry Fisher
Shackel- Stephens
Kaufmann Van
Harrison
Jones
Pinto
ford
Gregg
Smith
Hood Johnson Ellis
Andrews
Martin Howard Mitchell Nolan Taylor Callahan Eastland Erath
Henderson
Rusk Panola
Somervell
Navarro
CheroHill
Bosque
Loving Winkler Ector Midland GlassShelby
Anderson
kee
Comanche
Coke Runnels
Nacogcock Sterling
FreeColeman Brown
Culberson
Hamilton
doches AuguLime- stone
McClennan
stine
stone
Ward
Mills
Crane Upton
Tom
Houston
Coryell
Angelina
Reagan
Sabine
Leon
Reeves
Irion
Falls
Green Concho McCulloch San
LamTrinity
pasas
Robertson
Saba
Bell
Newton
Madison
Polk
Tyler Jasper
Schleicher
Burnet
Menard
Pecos
Milam
Walker
Jeff Davis
Crockett
San
Mason Llano
BrazosGrimes
Williamson
Jacinto
Burleson
Sutton
Hardin
Kimble
Lee
Travis
Montgomery Liberty
Orange
WashingGillespie Blanco
Terrell
Presidio
ton
Bastrop
Jefferson
Kerr
Hays
Austin
Harris
Edwards
Brewster
Kendall
Fayette
Val Verde
Waller
Caldwell
Chambers
Real
Comal
Bandera
Colorado
Fort Bend
Guadalupe
Galveston
Bexar
Gonzales Lavaca
Kinney
Medina
Uvalde
Wharton
Brazoria
Wilson
DeWitt
Jackson
Matagorda
Maverick
Karnes
Frio
Atascosa
Zavala
Victoria
Goliad
Calhoun
Bee
McMullen
Dimmit
Live
Refugio
La Salle
Aransas
Oak
San
Patricio
Jim
Wells Nueces
Webb
Duval
Kleberg
Young
Kent Stonewall Haskell Throckmorton
El Paso
Clay
Jack
Wise
Denton
Zapata Jim Hogg Brooks Kenedy
Starr
Hidalgo
Willacy
Cameron
Delta
Collin
Sunflower Crop Insurance
APH and Revenue Assurance
Sherman
Dallam
Hartley
Moore
Oldham
Potter
Hutchinson
Lipscomb
Castro
Roberts
Hemphill
Gray
Wheeler
Carson
Armstrong
Randall
Deaf Smith
Parmer
Ochiltree
Hansford
Briscoe
Swisher
Collingsworth
Donley
Hall
Childress
Hardeman
Bailey
Cochran
Yoakum
Gaines
Lamb
Hale
Floyd
Motley
Cottle
Foard
Wilbarger
Wichita
Knox
Baylor
Archer
Clay
Hockley
Lubbock
Crosby
Dickens
Terry
Lynn
Garza
Kent
Dawson
Borden
Scurry
King
Haskell
Stonewall
Fisher
Jones
Throckmorton
Shackelford
Montague
Jack
Wise
Young
Stephens
Palo
Pinto
Parker
Sunflower Crop Insurance
Hale County APH 2009
Yield Coverage Levels
1200 lbs/acre
$0.2035/lb.
50%
55%
60%
65%
70%
75%
Premium
4.34
5.72
6.84
9.23
11.43
15.36
Coverage
Liability
122.10
134.31
146.52
158.73
170.94
183.15
Sunflower APH

Dates






Sales Date
Planting
Reporting
Billing
March 15
June 15
July 15
Oct. 1
Proven Yields (10 year history)
t-yields
Sunflower Crop Insurance
APH and Revenue Assurance
Texas Counties
2009 Sunflower T-yield
Irrigated
Dryland
Bailey
1244
622
Briscoe
1133
Carson
Texas Counties
2009 Sunflower T-yield
Irrigated
Dryland
Jim Wells
N/A
744
567
Lamb
1222
587
1249
624
Lipscomb
744
744
Castro
1310
655
Lubbock
1214
607
Cochran
1126
598
Moore
1294
675
Crosby
1244
622
Nueces
N/A
744
Dallam
1285
642
Parmer
1252
601
Deaf Smith
1282
641
Potter
1271
659
Floyd
1261
631
Randall
1246
623
Gray
1248
624
Sherman
1285
642
Hale
1244
622
Swisher
1229
615
Hartley
1285
642
Yoakum
1239
620
Hidalgo
1244
622
Oklahoma Counties
Hockley
1191
595
Harper
1287
697
Texas
1422
697
CAT and NAP
Crop Insurance

CAT Coverage



Like APH (50% yield and 55% price)
$300 / crop / county
NAP Coverage


Similar to CAT (50% yield and 55% price)
$250 / crop / county
Sunflower
Example Revenue Profile
Price
APH
Expected Revenue
Actual Yield/Actual Price
1680
1560
1440
1320
1200
1080
960
840
720
600
480
360
240
120
0
Election
0%
0%
$0.2035
1200
$244.20
$0.14
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$0.16
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Revenue
Guarantee
$0.00
0
100%
$244
$0.18
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
65%
$159
$0.20
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
45%
$110
$0.22
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
less than
45%
$0.24
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$0.26
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
-
Sunflower CAT/NAP
55% Price, 50% Yield
Price
APH
Expected Revenue
Actual Yield/Actual Price
1680
1560
1440
1320
1200
1080
960
840
720
600
480
360
240
120
0
Election
55%
50%
$0.2035
1200
$244.20
$0.14
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13.4
26.9
40.3
53.7
67.2
$0.16
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13.4
26.9
40.3
53.7
67.2
Revenue
Guarantee
$0.11
600
100%
$244
$0.18
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13.4
26.9
40.3
53.7
67.2
65%
$159
$0.20
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13.4
26.9
40.3
53.7
67.2
45%
$110
$0.22
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13.4
26.9
40.3
53.7
67.2
less than
45%
$0.24
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13.4
26.9
40.3
53.7
67.2
$0.26
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13.4
26.9
40.3
53.7
67.2
Sunflower APH (50% Yield)
Price
APH
Expected Revenue
Actual Yield/Actual Price
1680
1560
1440
1320
1200
1080
960
840
720
600
480
360
240
120
0
Election
100%
50%
$0.2035
1200
$244.20
$0.14
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
24.4
48.8
73.3
97.7
122.1
$0.16
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
24.4
48.8
73.3
97.7
122.1
Revenue
Guarantee
$0.20
600
100%
$244
$0.18
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
24.4
48.8
73.3
97.7
122.1
65%
$159
$0.20
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
24.4
48.8
73.3
97.7
122.1
45%
$110
$0.22
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
24.4
48.8
73.3
97.7
122.1
less than
45%
$0.24
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
24.4
48.8
73.3
97.7
122.1
$0.26
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
24.4
48.8
73.3
97.7
122.1
Sunflower APH (65% Yield)
Price
APH
Expected Revenue
Actual Yield/Actual Price
1680
1560
1440
1320
1200
1080
960
840
720
600
480
360
240
120
0
Election
100%
65%
$0.2035
1200
$244.20
$0.14
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12.2
36.6
61.1
85.5
109.9
134.3
158.7
$0.16
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12.2
36.6
61.1
85.5
109.9
134.3
158.7
Revenue
Guarantee
$0.20
780
100%
$244
$0.18
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12.2
36.6
61.1
85.5
109.9
134.3
158.7
65%
$159
$0.20
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12.2
36.6
61.1
85.5
109.9
134.3
158.7
45%
$110
$0.22
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12.2
36.6
61.1
85.5
109.9
134.3
158.7
less than
45%
$0.24
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12.2
36.6
61.1
85.5
109.9
134.3
158.7
$0.26
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12.2
36.6
61.1
85.5
109.9
134.3
158.7
Sunflower RA (65%)
Price
APH
Expected Revenue
Actual Yield/Actual Price
Guaranteed Revenue
1680
1560
1440
1320
1200
1080
960
840
720
600
480
360
240
120
0
Revenue
Election
100%
50%
Guarantee
$0.20
600
100%
$244
65%
$159
45%
$110
less than
45%
$0.14
$0.16
$0.18
$0.20
$0.22
$0.24
$0.26
$122.10
$
$
$
$
$
$
$
2.4
$
19.5
$
36.6
$
53.7
$
70.8
$
87.9
$
105.0
$
122.1
$
$122.10
$
$
$
$
$
$
$
$
4.9
$
24.4
$
44.0
$
63.5
$
83.0
$
102.6
$
122.1
$
$122.10
$
$
$
$
$
$
$
$
$
12.2
$
34.2
$
56.2
$
78.1
$
100.1
$
122.1
$
$122.10
$
$
$
$
$
$
$
$
$
$
24.4
$
48.8
$
73.3
$
97.7
$
122.1
$
$134.31
$
$
$
$
$
$
$
$
$
$
26.9
$
53.7
$
80.6
$
107.4
$
134.3
$
$146.52
$
$
$
$
$
$
$
$
$
$
29.3
$
58.6
$
87.9
$
117.2
$
146.5
$
$158.73
$
$
$
$
$
$
$
$
$
$
31.7
$
63.5
$
95.2
$
127.0
$
158.7
$
$0.2035
1200
$244.20
On-Farm Biodiesel Production

Markets change incredibly fast.
A feasibility study in print is probably out of date,
or will be soon.

Things often missed in feasibility studies:




Initial investment & interest costs
Depreciation & Re-investment
Opportunity cost, especially time
Impact on equipment (real or perceived)
Funding Provided by