Aggregate Farm Level Impacts of the Farm Bill on the South 2002 Southern Region Agricultural Outlook Conference Tunica, Mississippi September 24, 2002 Joe L. Outlaw Associate Professor and Extension Economist Agricultural and Food Policy Center Texas A&M University

Assumptions for 2002 – 2007 Analysis of Farm Bill Impacts  Continuation of 2002 Farm Bill through 2007  No more Market Loss Assistance payments after 2001  Farmers update base and yields to maximize government payments  Farms structured so payment limits are not binding  FAPRI July 2002 Baseline provides Average annual prices Inflation rates for purchased inputs Interest rates Inflation rates for land  Historical yield and price risks used to incorporate risk.

Initial Debt Levels on Farms  Representative farms borrow all of their operating capital.  Real estate debt on January 1, 2001 assumed to be: 20%Feed grains 20% Wheat 20% Cotton 20%Rice 30%Dairy 1%Beef cattle 35%Hogs  Machinery and livestock debt is 20% for all farms.

Representative Farms and Ranches Used for the Analysis of the 2002 Farm Bill Rice Dairy Wheat Rice Cotton Dairy Cattle Wheat Dairy Feed Grain Cotton Dairy Feed Grain Cotton Rice Wheat Feed Grain Feed Grain Dairy Cattle Rice Hog Dairy Feed Grain Cotton Feed Grain Dairy Cattle Rice Cotton Rice Cotton Cattle Hog Cotton Rice Cotton Dairy

Definition of Output Variables  Probability of Cash Flow Deficits – chance that net cash farm income is less than family living, taxes, principal payments, and machinery replacement costs.  Probability of Losing Real Net Worth – chance that net worth, adjusted for inflation, is less than net worth at the end of 2001.

Definition of Overall Financial Position  Good – Less than 25% chance of cash flow deficits and losing real net worth. Marginal  Marginal – A % chance of cash flow deficits and losing real net worth.  Poor – Greater than 50% chance of cash flow deficits and losing real net worth.

REPRESENTATIVE FARMS PRODUCING FEED GRAINS IA NE MON MOC TN SC TXB TXNP

Economic Viability of Representative Feed Grain Farms Under Continuation of the 1996 Farm Bill Farm NameP(Cash Flow Deficit)P(Real Net Worth Declines) 1/1/ TXNP – 581 – 34 TXNP – 441 – 17 TXBG – 991 – 95 TXBG – 981 – 86 TNG – 991 – 94 TNG – 601 – 40 SCG – 771 – 45 SCG – 241 – 3 < 25%25-50%>50%

Economic Viability of Representative Feed Grain Farms Under Continuation of the 2002 Farm Bill Farm NameP(Cash Flow Deficit)P(Real Net Worth Declines) 3/3/ TXNP – 231 – 2 TXNP – 131 – 1 TXBG – 851 – 56 TXBG – 391 – 12 TNG – 61 – 1 TNG – 271 – 1 SCG – 751 – 36 SCG – 301 – 1 < 25%25-50%>50%

CA TN TXSP TXRP TXB TXCB AR LA AL NC GA REPRESENTATIVE FARMS PRODUCING COTTON

Economic Viability of Representative Cotton Farms Under Continuation of the 1996 Farm Bill Farm NameP(Cash Flow Deficit)P(Real Net Worth Declines) 0/5/ TXSP – 37 1 – 15 TXSP – 30 1 – 6 TXRP – 90 1 – 77 TXBC – 61 1 – 39 TXCB – 51 1 – 31 LAC – 76 1 – 83 ARC – 53 1 – 4 TNC – 27 1 – 1 TNC – 54 1 – 46 ALC – 50 1 – 25 NCC < 25%25-50%>50%

Economic Viability of Representative Cotton Farms Under Continuation of the 2002 Farm Bill Farm NameP(Cash Flow Deficit)P(Real Net Worth Declines) 6/5/ TXSP – 16 1 – 1 TXSP – 16 1 – 1 TXRP – 68 1 – 23 TXBC14006 – 12 1 – 1 TXCB – 37 1 – 2 LAC – 28 1 – 5 ARC50000 – 4 1 – 1 TNC19001 – 1 TNC – 24 1 – 1 ALC – 35 1 – 1 NCC – 87 1 – 23 < 25%25-50%>50%

CA TXB MO ARM LAS MS LAN ARH TX TXE REPRESENTATIVE FARMS PRODUCING RICE

Economic Viability of Representative Rice Farms Under Continuation of the 1996 Farm Bill Farm NameP(Cash Flow Deficit)P(Real Net Worth Declines) 0/2/ TXR – 941 – 97 TXR – 541 – 22 LASR – 991 – 99 LANR – 991 – 99 ARR – 371 – 4 MSR – 991 – 99 < 25%25-50%>50%

Economic Viability of Representative Rice Farms Under Continuation of the 2002 Farm Bill < 25%25-50%>50% Farm NameP(Cash Flow Deficit)P(Real Net Worth Declines) 6/4/ TXR – 421 – 18 TXR – 181 – 2 TXBR – 471 – 26 TXER – 161 – 2 LASR – 231 – 6 LANR – 581 – 23 ARSR – 91 – 1 ARWR – 491 – 17 ARHR – 231 – 4 MSR – 421 – 10

WA ID CA NM TXE TXC MO FLS FLN GAN GAS WI MIC MIE NYC NYW VT TXN REPRESENTATIVE FARMS PRODUCING MILK

Economic Viability of Representative Dairy Farms Under Continuation of the 1996 Farm Bill Farm NameP(Cash Flow Deficit)P(Real Net Worth Declines) 3/1/ TXCD40099 – 991 – 94 TXCD8255 – 31 – 1 TXED31074 –651 – 36 TXED75050 – 291 – 16 GAND20099 – 991 – 99 GASD70027 – 161 – 1 FLND50021 – 131 – 1 FLSD – 821 – 62 < 25%25-50%>50%

Economic Viability of Representative Dairy Farms Under Continuation of the 2002 Farm Bill Farm NameP(Cash Flow Deficit)P(Real Net Worth Declines) 3/3/ TXCD – 98 1 – 89 TXCD825 1 – 1 TXED – 33 1 – 3 TXED – 28 1 – 2 TXND – 35 1 – 6 GAND20099 – 991 – 56 GASD70041 – 421 – 6 FLND50011 – 41 – 1 FLSD – 921 – 65 < 25%25-50%>50%

ILIN NC IA REPRESENTATIVE FARMS PRODUCING HOGS

Economic Viability of Representative Hog Farms Under Continuation of the 1996 Farm Bill Farm NameP(Cash Flow Deficit) P(Real Net Worth Declines) 2/0/ NCH35013 – 31 – 1 NCH – 51 – 2 < 25%25-50%>50%

Economic Viability of Representative Hog Farms Under Continuation of the 2002 Farm Bill Farm NameP(Cash Flow Deficit) P(Real Net Worth Declines) 2/0/ NCH35092 – 11 – 1 NCH – 11 – 1 < 25%25-50%>50%

Comparison of 1996 Farm Bill to 2002 Bill for Southern Crop Farms Cash Flow1996 Farm Bill2002 Farm Bill Good 1 of 2514 of 29 Moderate 6 of 2510 of 29 Poor 18 of 255 of 29 Overall Viability Good 1 of 2515 of 29 Moderate 8 of 2512 of 29 Poor 16 of 252 of 29

Comparison of 1996 Farm Bill to 2002 Bill for Southern Livestock Farms Cash Flow1996 Farm Bill2002 Farm Bill Good 5 of 104 of 11 Moderate 1 of 104 of 11 Poor 4 of 103 of 11 Overall Viability Good 5 of 105 of 11 Moderate 1 of 103 of 11 Poor 4 of 103 of 11

Conclusions Relative to December 2001 Baseline Significant improvement in economic viability across all crop farms Still considerable cash flow pressure Very little pressure on equity as land values stem the slide Improvement in economic viability of dairy operations Considerable cash flow pressure Some equity pressure Hog operations marginally worse Considerable cash flow pressure