Extension and Outreach/Department of Economics Outlook, Farm Bill, and Crop Insurance Ag Credit School Ames, Iowa June 7, 2012 Chad Hart Assistant Professor/Grain Markets Specialist

Extension and Outreach/Department of Economics U.S. Corn Supply and Use Area Planted(mil. acres) Yield(bu./acre) Production(mil. bu.)12,09213,09212,44712,35814,790 Beg. Stocks(mil. bu.)1,6241,6731,7081, Imports(mil. bu.) Total Supply(mil. bu.)13,72914,77414,18213,50615,656 Feed & Residual(mil. bu.)5,1825,1254,7934,5505,450 Ethanol(mil. bu.)3,7094,5915,0215,000 Food, Seed, & Other(mil. bu.)1,3161,3701,4071,4051,425 Exports(mil. bu.)1,8491,9801,8351,7001,900 Total Use(mil. bu.)12,05613,06613,05512,65513,775 Ending Stocks(mil. bu.)1,6731,7081, ,881 Season-Average Price($/bu.) Source: USDA-WAOB

Extension and Outreach/Department of Economics U.S. Soybean Supply and Use Area Planted(mil. acres) Yield(bu./acre) Production(mil. bu.)2,9673,3593,3293,0563,205 Beg. Stocks(mil. bu.) Imports(mil. bu.) Total Supply(mil. bu.)3,1853,5123,4953,2863,430 Crush(mil. bu.)1,6621,7521,6481,6451,655 Seed & Residual(mil. bu.) Exports(mil. bu.)1,2791,4991,5011,3151,505 Total Use(mil. bu.)3,0473,3613,2803,0763,285 Ending Stocks(mil. bu.) Season-Average Price($/bu.) Source: USDA-WAOB

Extension and Outreach/Department of Economics Corn Planting Source: USDA-NASS

Extension and Outreach/Department of Economics Soybean Planting Source: USDA-NASS

Extension and Outreach/Department of Economics World Corn Production Source: USDA-WAOB

Extension and Outreach/Department of Economics World Soybean Production Source: USDA-WAOB

Extension and Outreach/Department of Economics Hog Crush Margin Source: Shane Ellis, ISU Extension The Crush Margin is the return after the pig, corn and soybean meal costs. Carcass weight: 200 poundsPig price: 50% of 5 mth out lean hog futures Corn: 10 bushels per pigSoybean meal: 150 pounds per pig

Extension and Outreach/Department of Economics Change of Export Pace

Extension and Outreach/Department of Economics Corn Grind for Ethanol Source: DOE-EIA

Extension and Outreach/Department of Economics Projected 2012 Season-Average Corn Price Cost

Extension and Outreach/Department of Economics Projected 2012 Season-Average Soy Price Cost

Extension and Outreach/Department of Economics Budget Projections by Title Title Budget Change ($ million) Title I – Commodity-17,639 Title II – Conservation -6,374 Title III – Trade 0 Title IV – Nutrition -4,024 Title V – Credit 0 Title VI – Rural Development 0 Title VII – Research 645 Title VIII – Forestry 9 Title IX – Energy 0 Title X – Horticulture 359 Title XI – Crop Insurance 2,748 Title XII – Miscellaneous -466 Total-24,747

Extension and Outreach/Department of Economics Budget Projections by Crop Crop Budget Change ($ million) Corn-5,752 Soybean 1,459 Wheat-6,409 Cotton-6,077 Rice-2,842 Sorghum -505 Barley -615 Oats -11 Peanuts -314 Dairy -59

Extension and Outreach/Department of Economics Commodity Title Changes Budget Change ($ million) End Direct Payments-44,622 End Countercyclical Payments -1,008 End ACRE -4,615 Adding Popcorn 91 Ag. Risk Coverage 29,240 Marketing Loans 35 Sugar Program 0 Dairy Program -59 Disaster Assistance 3,297 AGI Limits -95 Implementation 100 Total-17,639

Extension and Outreach/Department of Economics 2012 Senate Proposal  Eliminates direct payments, countercyclical payments, and the ACRE program  Keeps marketing loan program  Creates the Ag. Risk Coverage program

Extension and Outreach/Department of Economics ARC instead of ACRE  Revenue-based support program  Farmer chooses county or farm-based guarantee  Choice determines the % of land covered by the program

Extension and Outreach/Department of Economics ARC Set-up for Corn in 2013 Yield per Planted Acre YearFarm (bu./acre) County (bu./acre) Season-Average Price ($/bu.) Olympic Average year average 3.77

Extension and Outreach/Department of Economics ARC Guarantees  Benchmark Revenue = $779.00/acre = 164 bu/acre * $4.75/bu. for county $618.28/acre = 164 bu/acre * $3.77/bu. for farm  In this case, the guarantee equals 89% * $779.00/acre = $693.31/acre for county 89% * $618.28/acre = $550.27/acre for farm  Payments are triggered when actual revenues fall below these levels

Extension and Outreach/Department of Economics ARC Acreage  For farm-based option, you get paid on 65% of your planted acres and 45% of your prevented planting acres  For county-based option, you get paid on 80% of your planted acres and 45% of your prevented planting acres

Extension and Outreach/Department of Economics ARC Payout Graph ARC pays out No ARC payments

Extension and Outreach/Department of Economics Crop Insurance Title Changes Budget Change ($ million) Supplemental Coverage Option 682 CAT Rerating -437 Enterprise Units 506 APH Adjustment 855 Stacked IP for Cotton 3,224 Peanut Rev. Insurance 239 Implementation 85 Index-Based Weather Ins. 50 Beginning Farmer Provisions 192 Ag. Mng. Assistance 6 Crop Prod. on Native Sod -167 Participation Effects from ARC-2,487 Total 2,748

Extension and Outreach/Department of Economics Federal Crop Insurance

Extension and Outreach/Department of Economics Causes of Loss for Iowa Corn,

Extension and Outreach/Department of Economics Causes of Loss for Iowa Soy,

Extension and Outreach/Department of Economics Acres Insured in 2011 Corn and Soybeans--Iowa

Extension and Outreach/Department of Economics RPE Pays Neither Pay Both Pay YP Pays RP Payout Graph RP Pays No Payment

Extension and Outreach/Department of Economics Corn Insurance Prices Harvest prices have been higher 4 out of last 12 years

Extension and Outreach/Department of Economics Soy Insurance Prices Harvest prices have been higher 6 out of last 12 years

Extension and Outreach/Department of Economics Current Subsidy Rates Coverage level Basic Units Optional Units Enterprise Units Whole Farm Units 60% 64% 80% not avail. 65% 59% 80% 70% 59% 80% 75% 55% 77%80% 48% 68%71% 85% 38% 53%56%

Extension and Outreach/Department of Economics Coverage Level Choice

Extension and Outreach/Department of Economics Crop Insurance  Supplemental Coverage Option  Can purchase area-based policy to cover deductible part of individual-based policy  Payments triggered when area suffers 10% loss  If you participate in ARC, you face a deductible of 21% for this option  What is the deductible if you do not participate in ARC?  70% premium subsidy for actuarially fair premium

Extension and Outreach/Department of Economics Crop Insurance  Enterprise discounts are now permanent  Separate enterprise units for irrigated and nonirrigated land  Change t-yield percentage from 60% to 70%  Any renegotiation of the Standard Reinsurance Agreement shall be budget neutral

Extension and Outreach/Department of Economics Crop Insurance  Allows private insurance company pilot of index-based weather insurance  Allows premium subsidy of 60% or less  Waives CAT fee, adds 10% to premium subsidy rates, and sets yield bound at 80% of the t-yield for beginning farmers

Extension and Outreach/Department of Economics Not the Last Word on the 2012 Farm Bill  Senate proposal is just the start of the process  There will likely be several changes/modifications  ARC may or may not be in the final farm bill  But now we know the starting point for negotiations

Extension and Outreach/Department of Economics Thank you for your time! Any questions? My web site: Iowa Farm Outlook: Ag Decision Maker: