Farm Bill Outlook and the Potential Impact on Agriculture

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Presentation transcript:

Farm Bill Outlook and the Potential Impact on Agriculture Urban Ag Academy Ames, Iowa July 14, 2017 Chad Hart Associate Professor/Crop Marketing Specialist chart@iastate.edu 515-294-9911 1 1

Timing and Budget Federal ag leadership hopes to pass the Farm Bill this year Usual course of action is to avoid passage in election years Reports of preliminary budget deal for the Farm Bill House Ag and Budget chairpeople met in late June But no firm numbers have been released CBO baseline set the stage for a smaller budget Faster Farm Bill passage = Fewer changes to current policy

President’s Budget Request Source: OMB, 2018 Budget

USDA’s Budget Source: USDA 2017 Budget

Proposed Adjustments in Nutrition Policy Source: OMB, 2018 Budget

Proposed Adjustments in Farm Policy Source: OMB, 2018 Budget

Federal Crop Insurance

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: 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.

Current Projected Payments Source: CBO, June 2017

Mix of Projected Payments Source: CBO, June 2017

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. If agricultural prices slowly improve (as projected), the squeeze on farm finances will improve as well. But for some producers, the squeeze may be too much.

Iowa Corn Prices vs. Costs

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/