Farm Bill Outlook and the Potential Impact on Agriculture Urban Ag Academy Ames, Iowa July 20, 2018 Chad Hart Associate Professor/Crop Marketing Specialist chart@iastate.edu 515-294-9911 1 1

USDA’s Budget Source: USDA, FY 2019 Budget Summary

Timing Federal ag leadership hopes to pass the Farm Bill this year Current Farm Bill is set to sunset Sept. 30, 2018 Both chambers of Congress have passed their own separate versions of the Farm Bill The next step is to appoint a conference committee to craft a compromise Farm Bill The House has named conferees; the Senate has not. Very tight timeline to pass Farm Bill for the President’s signature

Significant Differences Differences in legislation and approach between the chambers House Farm Bill passed on partisan lines Senate Farm Bill passed with bi-partisan vote Major differences on work requirements for nutrition programs Senate put in tighter payment limitations than House for commodity support programs House reduced spending for conservation programs (and eliminated some programs), while Senate maintained conservation spending

PLC: Corn Payment Potential Reference Price = $3.70 per bushel Payment Yield = 150 bushels per acre Marketing Year Price ($/bu) PLC Payment Rate ($/bu) PLC Payment ($/base acre) $3.10 $0.60 $76.50 $3.20 $0.50 $63.75 $3.30 $0.40 $51.00 $3.40 $0.30 $38.25 $3.50 $0.20 $25.50 $3.60 $0.10 $12.75 $3.70 $0.00 For PLC, the payment rate is the difference between the reference price and the maximum of either the marketing year average price or the loan rate (if the difference is negative, then the payment rate is zero). Take the payment rate times the payment (or base) yield times 85% to get the PLC payment per base acre. Notes: PLC payments are made on 85% of base acres.

ARC-CO: 2015 Corn Revenue Guarantee Year Yield MYA Price ARC Price 2010 162 $5.18 2011 163 $6.22 2012 157 $6.89 2013 135 $4.46 2014 168 $3.70 Oly. Ave. 161 $5.29 Here’s the 5 years of price and yield data for Story County, Iowa corn. The red numbers are the high and low ones that are not used in the Olympic average (remember the Olympic average throws out the high and low). Also, the price used in the average can not be below the reference price specified in the farm bill (in this case, $3.70 for corn). So as the black circle above shows, the price in 2009 was replaced by the reference price. So the 5-year Olympic average yield is 161.3 bushels per acre. The 5-year Olympic average price is $5.32 per bushel. Combine the two to get the benchmark revenue of $858.12 per acre. The ARC revenue guarantee is 86% of the benchmark, so it’s $737.98 per acre. Benchmark Revenue = $851.69 per acre ARC Revenue Guarantee = $732.45 per acre Notes: Example is Story County, Iowa. Revenue Guarantee equals 86% of Benchmark.

PLC pays, ARC does not Neither pay Both pay ARC pays, PLC does not The choice depends on where you expect prices and yields to be over the next 5 years. There are price/yield combinations where PLC pays and ARC does not. There are also price/yield combinations where ARC pays and PLC does not.

ARC-CO: 2017 Corn Revenue Guarantee Year Yield MYA Price ARC Price 2012 157 $6.89 2013 135 $4.46 2014 168 $3.70 2015 188 $3.61 2016 212 $3.36 Oly. Ave. 171 $3.95 Here’s the 5 years of price and yield data for Story County, Iowa corn. The red numbers are the high and low ones that are not used in the Olympic average (remember the Olympic average throws out the high and low). Also, the price used in the average can not be below the reference price specified in the farm bill (in this case, $3.70 for corn). So as the black circle above shows, the price in 2009 was replaced by the reference price. So the 5-year Olympic average yield is 161.3 bushels per acre. The 5-year Olympic average price is $5.32 per bushel. Combine the two to get the benchmark revenue of $858.12 per acre. The ARC revenue guarantee is 86% of the benchmark, so it’s $737.98 per acre. Benchmark Revenue = $675.45 per acre ARC Revenue Guarantee = $580.89 per acre Notes: Example is Story County, Iowa. Revenue Guarantee equals 86% of Benchmark.

Federal Crop Insurance

Ag Productivity and Usage Using corn as an example Source: USDA

Ag Prices Using corn as an example Source: USDA

Net Farm Income Source: USDA

Farm Debt Source: Federal Reserve

Ag Economic Summary Agricultural production and consumption has grown rapidly over the past several years. But when production exceeds consumption, prices fall. Crop revenues peaked in 2012-13, while livestock revenues crested in 2014-15, leading to record farm incomes. Since then net farm income has been cut in half. While the percentage loss in substantial, net farm income remains above levels from the early 2000’s. Farmers and ranchers have partially compensated for the loss in income by taking on higher debt loads. Farm and ranch balance sheets are eroding and financial stress is building for some producers, but the financial issues are not as severe as during the 1980’s. The recent trade issues have driven ag prices lower, putting additional pressure on farms already facing financial problems.

Iowa Corn Prices vs. Costs

Source: USDA-FAS

Source: USDA-FAS

Source: USDA-FAS

Source: USDA-FAS

Value of Ag Trade Source: USDA-FAS

U.S. Ag Exports Source: USDA-FAS

Pork Export Shifts Source: USDA-FAS

Beef Export Shifts Source: USDA-FAS

Corn Export Shifts Source: USDA-FAS

Soybean Export Shifts Source: USDA-FAS

Arable Land

Thank you for your time. Any questions. My web site: http://www2. econ Thank you for your time! Any questions? My web site: http://www2.econ.iastate.edu/faculty/hart/ Iowa Farm Outlook: http://www2.econ.iastate.edu/ifo/ Ag Decision Maker: http://www.extension.iastate.edu/agdm/