Pat Westhoff FAPRI-MU director University of Missouri Farm Bill Decision Aid Training Memphis, Tennessee September 25, 2014

 FAPRI-MU crop market outlook  Price projections  Farm commodity supply and use that generate those prices  Uncertainty around the projections  Why prices matter in making program choices

 FAPRI-MU has been making market projections for 30 years  Complex models of U.S. and world markets + analyst expertise  DC review of models and projections each December  Annual baseline released in early March  Updates  August update each year  For this project, monthly updates—September is first official  Reflect new information on crop production, demand, etc.  We know actual prices will differ  We solve for 500 different futures given different assumptions

Avg. of March estimates: bu./a. and $4.17/bu.

September USDA estimates: bu./a. and $3.50/bu. Avg. of March estimates: bu./a. and $4.17/bu.

 Economic growth, exchange rates, etc.  Policy (generally keep current policies)  Technology (generally trend growth in crop yields, etc.)  Economic choices by producers and consumers  Weather and other factors that make markets volatile

Source: IHS Global Insight, July 2014

2012/132013/142014/15 Planted area (mil. a.) Harvested area (mil. a.) Yield (bu./a.) Production (mil. bu.)10,78013,92514,395 Feed & residual (mil. bu.) 4,339 5,175 5,325 Ethanol & coproducts (mil. bu.) 4,641 5,125 Other domestic use (mil. bu.) 1,398 1,375 1,405 Exports (mil. bu.) 730 1,925 1,750 Ending stocks (mil. bu.) 821 1,181 2,002 Farm price per bushel$6.89$4.45$3.20-$3.80

Source: Unpublished FAPRI-MU projections, Sep. 2014

2012/132013/142014/15 Planted area (mil. a.) Harvested area (mil. a.) Yield (bu./a.) Production (mil. bu.)3,0343,2893,913 Crush (mil. bu.)1,6891,7301,770 Seed and residual (mil. bu.) Exports (mil. bu.)1,3171,6451,700 Ending stocks (mil. bu.) Farm price per bushel$14.40$13.00$9.00-$11.00

Source: Unpublished FAPRI-MU projections, Sep. 2014

 Both ARC and PLC depend on U.S. season- average prices  Lower prices increase payments under both programs, all else equal  But actual payments under the two programs can differ—sometimes by a lot

 Price Loss Coverage  Payment if annual average farm price is less than reference price ▪ Wheat: $5.50/bu. ▪ Corn: $3.70/bu. ▪ Soybeans: $8.40/bu. ▪ Sorghum: $3.95/bu. ▪ Long-grain rice: $14.00/cwt.  Paid on 85% of base acres (tied to historical plantings) Sources: Agricultural Act of 2014, FAPRI-MU March 2014 baseline; USDA baseline, Feb. 2014

Source: FAPRI-MU stochastic baseline, March 2014

Source: FAPRI-MU baselines, March and Sep. 2014; CME December futures contracts, Sep. 23, 2014

Source: FAPRI-MU March 2014 stochastic baseline

 Price Loss Coverage  Payment if annual average farm price is less than reference price ▪ Wheat: $5.50/bu. ▪ Corn: $3.70/bu. ▪ Soybeans: $8.40/bu. ▪ Sorghum: $3.95/bu. ▪ Long-grain rice: $14.00/cwt.  Paid on 85% of base acres (tied to historical plantings) Sources: Agricultural Act of 2014, FAPRI-MU March 2014 baseline; USDA baseline, Feb. 2014

Source: FAPRI-MU stochastic baseline, March 2014

Source: FAPRI-MU baselines, March and Sep. 2014; CME Nov. futures contracts, Sep. 23, 2014

Source: FAPRI-MU March 2014 stochastic baseline

 Price Loss Coverage  Payment if annual average farm price is less than reference price ▪ Wheat: $5.50/bu. ▪ Corn: $3.70/bu. ▪ Soybeans: $8.40/bu. ▪ Sorghum: $3.95/bu. ▪ Long-grain rice: $14.00/cwt.  Paid on 85% of base acres (tied to historical plantings) Sources: Agricultural Act of 2014, FAPRI-MU March 2014 baseline; USDA baseline, Feb. 2014

Source: FAPRI-MU stochastic baseline, March 2014

Source: FAPRI-MU baselines, March and Sep. 2014; CME July futures contracts, Sep. 23, 2014

Source: FAPRI-MU March 2014 stochastic baseline

 Price Loss Coverage  Payment if annual average farm price is less than reference price ▪ Wheat: $5.50/bu. ▪ Corn: $3.70/bu. ▪ Soybeans: $8.40/bu. ▪ Sorghum: $3.95/bu. ▪ Long-grain rice: $14.00/cwt.  Paid on 85% of base acres (tied to historical plantings) Sources: Agricultural Act of 2014, FAPRI-MU March 2014 baseline; USDA baseline, Feb. 2014

Source: FAPRI-MU baselines, March and September 2014; November 2014 rough rice futures contract, Sep. 24, 2014

Source: FAPRI-MU baselines, March and September 2014; CME Dec. futures, Sep. 24, 2014

 Agriculture Risk Coverage (ARC)  Payment if per-acre revenues fall below trigger  For this example, using national yields, but actual program uses county- or farm-level yields  Paid on share of base acreage ▪ 85% if choose county option ▪ 65% if choose farm option (all crops on farm) Sources: Agricultural Act of 2014, FAPRI-MU Sep baseline

Max of (national avg. farm price, reference price) County yieldRevenue 2009/10$3.70/bu bu./a. 2010/11$ /12$ /13$ * 2013/14$ Olympic average$ /15 benchmark revenue$620 86% of benchmark$533 1 st option triggering payments$3.90<137<$533 2 nd option triggering payments<$ <$533 *Note: this yield would be replaced by a plug yield, but regardless, it is dropped as the lowest of the five years.

Source: FAPRI-MU March 2014 stochastic baseline

Given Sep. baseline prices, 2014 expected payments would be considerably higher under both programs.

 Agriculture Risk Coverage (ARC)  Payment if per-acre revenues fall below trigger  For this example, using national yields, but actual program uses county- or farm-level yields  Paid on share of base acreage ▪ 85% if choose county option ▪ 65% if choose farm option (all crops on farm) Sources: Agricultural Act of 2014, FAPRI-MU Sep baseline

Source: FAPRI-MU March 2014 stochastic baseline

 Agriculture Risk Coverage (ARC)  Payment if per-acre revenues fall below trigger  For this example, using national yields, but actual program uses county- or farm-level yields  Paid on share of base acreage ▪ 85% if choose county option ▪ 65% if choose farm option (all crops on farm) Sources: Agricultural Act of 2014, FAPRI-MU Sep baseline

Source: FAPRI-MU March 2014 stochastic baseline

Given Sep. baseline prices, 2014 expected payments would be lower under PLC.

Source: FAPRI-MU March 2014 stochastic baseline

2014/15 national season- average corn price PLC payment per base acre (program yield= 100 bu./a.) ARC payment per base acre if county yield is 110 bu./a. ARC payment per base acre if county yield is 130 bu./a. ARC payment per base acre if county yield is 150 bu./a. 3.00$59.50$ $42.50$52.66 $ $25.50$52.66 $ $8.50$52.66 $ $0.00$52.66$33.00 $ $0.00$52.66$10.90 $ $0.00$52.66 $ $0.00 $41.50 $ $0.00 $22.80 $0.00

Source: “U.S. Baseline Briefing Book,” March 2014, page 49

 FAPRI-MU website:  To contact Pat Westhoff:    FAPRI-MU team:  Julian Binfield  Sera Chiuchiarelli  Deepayan Debnath  Scott Gerlt  Lauren Jackson  Willi Meyers  Wyatt Thompson  Jarrett Whistance  Peter Zimmel