Transcript Implications of the New 2008 Farm Bill North Central Iowa Crop & Land Stewardship Clinic Iowa Falls, Iowa January 2, 2009 Chad Hart Assistant Professor/Grain Markets.

Implications of the New 2008
Farm Bill
North Central Iowa Crop & Land Stewardship Clinic
Iowa Falls, Iowa
January 2, 2009
Chad Hart
Assistant Professor/Grain Markets Specialist
[email protected]
515-294-9911
Department of Economics
A Short Timeline for the Farm Bill
May 2005 Farm groups outlines proposals
July 2005 USDA begins nationwide forums
Feb. 2006 Congress begins farm bill hearings
Jan. 2007 USDA releases farm bill recommendations
July 2007 House passes its version of the farm bill
Dec. 2007 Senate passes its version
May 2008 House and Senate agree on farm bill
June 2008 House and Senate override veto of farm
bill
Department of Economics
Farm Bill Titles
I.
Commodities
II. Conservation
III. Trade
IV. Nutrition
V. Credit
VI. Rural Development
VII. Research
VIII. Forestry
Department of Economics
IX. Energy
X. Hort. & Organic Ag.
XI. Livestock
XII. Crop Insurance
XIII. Commodity Futures
XIV. Miscellaneous
XV. Trade & Taxes
Farm Bill Projected Spending
4%
8%
14%
Projected Spending
2008-2013
$297 Billion
8%
66%
Commodity
Department of Economics
Conservation
Nutrition
Crop Insurance
Other
The 2008 Farm Bill
Continues many of the same programs we have
currently
Direct payments
Price countercyclical payments (CCPs)
Marketing loans
CRP, EQIP, and other conservation programs
Gives producers a choice on programs
Average Crop Revenue Election (ACRE)
Sets up new permanent disaster program
Supplemental Revenue Assistance Payments Program
(SURE)
Department of Economics
Target Price Changes
Crop
Unit
2008-09
2010-12
Corn
$/bu.
2.63
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
1.95
Soybeans
$/bu.
5.00
5.00
Barley
$/bu.
1.85
1.95
Wheat
$/bu.
2.75
2.94
Oats
$/bu.
1.33
1.39
Cotton
$/lb.
0.52
0.52
Sorghum
$/bu.
1.95
1.95
Department of Economics
Other Adjustments to Current
Programs
 Payment acres = 85% of base in 2008 and 2012
 Payment acres = 83.3% of base in 2009-11
 Establishes pulse crops (dry peas, lentils,
chickpeas) as program crops
 Posted county price based on 30-day moving
average
Department of Economics
Average Crop Revenue Election
(ACRE)
ACRE is a revenue-based counter-cyclical
payment program
 Based on state and farm-level yields per planted acre
and national prices
Producers choose between the current
price-based counter-cyclical payment
(CCP) program and ACRE
There are still some details to be worked
out about ACRE (stay tuned)
Department of Economics
Farmer Choice
 Starting in 2009, producers will be given the
option of choosing ACRE or not
 Can choose to start ACRE in 2009, 2010, or beyond
 Once you’re in ACRE, you stay in ACRE until the next
farm bill
 If you sign up for ACRE, you must do so for all eligible
crops
 Deadline for sign-up, June 1 of each year
 Producers choosing ACRE agree to 20% decline
in direct payments and 30% decline in loan rates
Department of Economics
ACRE
 Program has state and farm trigger levels, both
must be met before payments are made
 Expected state and farm yield based on 5 year
Olympic average yields per planted acre
 ACRE price guarantee is the 2 year average of
the national season-average price
Department of Economics
ACRE Set-up for Iowa Corn
Year
Yield per Planted Acre
(bu./acre)
Year
Season-average Price
($/bu.)
2004
176.7
2007
4.20
2005
168.9
2008
4.00
2006
162.7
2007
166.8
Average
4.10
2008
161.7
Olympic
Average
166.1
The 2008 yield and price are USDA’s December 2008 estimates.
So the expected state yield would be 166.1 bushels per acre and the ACRE
price guarantee would be $4.10 per bushel.
Department of Economics
ACRE Structure
ACRE revenue guarantee = 90% of ACRE
price guarantee * Expected state yield
For our example, the ACRE revenue guarantee
is 90% * 166.1 bu./acre * $4.10/bu.
$612.91/acre
ACRE actual revenue = Max(Seasonaverage price, Loan rate) * Actual state
yield per planted acre
Department of Economics
ACRE Structure
ACRE Farm revenue trigger = Expected
farm yield * ACRE price guarantee +
Producer-paid crop insurance premium
Let’s assume farm yields equal to state yields
and use the average producer-paid crop
insurance premium for 2008 (so far)
166.1 bu./acre * $4.10/bu. + $17.58/acre
$703.69/acre
Department of Economics
ACRE Payment Triggers
ACRE actual farm revenue = Max(Seasonaverage price, Loan rate) * Actual farm yield
per planted acre
Given our example, ACRE payments are
triggered when ACRE actual revenue is
below $612.91/acre and ACRE actual farm
revenue is below $703.69/acre
Department of Economics
ACRE Payments
Payment rate = Min(ACRE revenue
guarantee – ACRE actual revenue, 25% *
ACRE revenue guarantee)
Payments made on 83.3% of planted/base
acres in 2009-11, 85% in 2012
ACRE payment adjustment: Payment
multiplied by ratio of Expected farm yield to
Expected state yield
Department of Economics
ACRE vs. CCP
Bushels per planted acre
500
400
CCP
pays
out
No CCP
payments
300
No ACRE payments
200
ACRE pays out
100
0
1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50 6.00 6.50 7.00 7.50 8.00
$ per bushel
Department of Economics
You Don’t Have to Decide Today
ACRE signup will not be for a while
Once the ACRE rules are finalized, there
will be a number of decision tools available
to help producers
Preliminary ACRE information and tools are
available at:
http://www.extension.iastate.edu/agdm/crops/html/a1-45.html
http://www.card.iastate.edu/ag_risk_tools/acre/
Department of Economics
Supplemental Revenue Assistance
Payments Program (SURE)
Provides payments to producers in disaster
counties for crop losses
Based on crop insurance program, noninsured crop assistance program, and
disaster declarations
Whole-farm revenue protection, not
commodity-specific
Department of Economics
SURE Triggers
Declared “disaster county” by Secretary of
Agriculture or contiguous to one
Farm with losses exceeding 50% of normal
production in a calendar year
Department of Economics
SURE Settings
Participation and revenue guarantee tied to
crop insurance
Farm revenue, including some government
payments, used to determine payment
Payments set as 60% of the difference
between guarantee and actual revenue
Limited to $100,000 per producer
Payments not known or paid until the end of the
marketing year
Department of Economics
SURE Guarantee
Farm guarantee is the sum of
 115%*Crop insurance price election*Crop insurance
coverage level*Planted acres* Max(APH or CCP yield),
for insurable commodities
 120%*NCAP price election*Planted acres* Max(NCAP
or CCP yield), for non-insurable commodities
 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
Expected farm revenue is the sum of
Max(APH or CCP yield)*Planted acres*100% of
the crop insurance price for insurable
commodities
100% of NCAP yield*100% of NCAP
price*Planted acres for non-insurable
commodities
Department of Economics
SURE Actual Farm Revenues
Actual farm revenue is the sum of
Harvested acres*Farm yield*National seasonaverage price for all commodities
15% of direct payments
All CCP or ACRE payments
All marketing loan benefits
All crop insurance or NCAP payments
Any other disaster assistance payments
Department of Economics
SURE Payments
Payments set as 60% of the difference
between farm guarantee and actual farm
revenue
Payments limited to $100,000 per producer
Payments not known until end of marketing
year
Department of Economics
SURE Calculator
USDA has created a calculator for SURE
 http://www.fsa.usda.gov/Internet/FSA_File/sure_calculator.xls
 http://www.fsa.usda.gov/Internet/FSA_File/calculator_instructions.pdf
 Calculator limited to yield based crops
 Does not address value loss crop, prevented planting, double
cropping, and several other scenarios
Department of Economics
Payment Limitations
Direct payments: $40,000 (w/o ACRE)
$32,000 (w/ ACRE)
Counter-cyclical payments: $65,000
ACRE: $73,000 ($65,000 + $8,000)
Marketing loans: No limits
Direct attribution of payments
Elimination of the 3-entity rule
Department of Economics
Crop Insurance Changes
 Reduced premium subsidy rates for area crop
insurance plans (GRP, GRIP)
 Increased premium subsidy rates for enterprise
and whole-farm units
 Increased fees for catastrophic (CAT) coverage to
$300 per crop per county
 Moved premium billing date to August 15th,
starting in 2012
Department of Economics
Conservation
CRP limited to 32 million acres (starting
2010)
WRP extended (3 million acres)
EQIP funding increased
CSP renamed and strengthened
Targeted enrollment: 12.77 million acres per
year
Department of Economics
Energy in the Farm Bill
Grants for advanced biofuel biorefineries,
up to 30% of the cost of the project
Loans for the same, up to $250 million or
80% of the cost per project
Bioenergy Program for Advanced Biofuels
Biomass Crop Assistance Program
Cellulosic biofuel producer tax credit
Department of Economics
Thank you for your time!
Any questions?
http://www.econ.iastate.edu/faculty/hart/
Department of Economics