1. Agricultural Marketing
ECON 337:
Agricultural Marketing
Lee Schulz
Associate Professor
Chad Hart
Associate Professor 1

2. Farm Bill Titles Commodities IX. Energy
Conservation X. Hort. & Organic Ag.
Trade XI. Crop Insurance
Nutrition XII. Miscellaneous
Credit
Rural Development
Research
Forestry

3. Programs by Title Commodity
Income and price support programs for producers
Conservation
Environmental/conservation programs
Trade
Trade promotion programs
Nutrition
Income and price support programs for consumers

4. Programs by Title Credit Farm loan/Ag credit programs
Rural Development
Rural infrastructure programs
Research
Research funding for USDA and higher education
Forestry
Forestry management programs

5. Programs by Title Energy Biofuel programs
Horticulture and Organic Agriculture
Farmers markets
Crop Insurance
Modifications to crop insurance
Miscellaneous
Livestock disaster programs and price reporting

6. Farm Bill Projected Spending

7. Commodity Title Spending

8. 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.

9. 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 bushels per acre. The 5-year Olympic average price is $5.32 per bushel. Combine the two to get the benchmark revenue of $ per acre. The ARC revenue guarantee is 86% of the benchmark, so it’s $ per acre.
Benchmark Revenue = $ per acre
ARC Revenue Guarantee = $ per acre
Notes: Example is Story County, Iowa. Revenue Guarantee equals 86% of Benchmark.

10. 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.

11. 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 bushels per acre. The 5-year Olympic average price is $5.32 per bushel. Combine the two to get the benchmark revenue of $ per acre. The ARC revenue guarantee is 86% of the benchmark, so it’s $ per acre.
Benchmark Revenue = $ per acre
ARC Revenue Guarantee = $ per acre
Notes: Example is Story County, Iowa. Revenue Guarantee equals 86% of Benchmark.

12. ARC-CO: 2018 Corn Revenue Guarantee
Year
Yield
MYA Price
ARC Price
2013
135
$4.46
2014
168
$3.70
2015
188
$3.61
2016
212
$3.36
2017
200
Oly. Ave.
185
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 bushels per acre. The 5-year Olympic average price is $5.32 per bushel. Combine the two to get the benchmark revenue of $ per acre. The ARC revenue guarantee is 86% of the benchmark, so it’s $ per acre.
Benchmark Revenue = $ per acre
ARC Revenue Guarantee = $ per acre
Notes: Example is Story County, Iowa. Revenue Guarantee equals 86% of Benchmark.

13. Marketing Loan Program
Government program meant to provide cash flow support during the marketing year
Loans are nonrecourse, this means that the crop can be used as payment for the loan
Available for over 20 commodities

14. Loan Rates Crop Unit 2018 Corn $/bu. 1.95 Soybeans 5.00 Barley Wheat
2.94
Oats
1.39
Cotton
$/lb.
0.52
Sorghum

15. Marketing Loans and LDPs
The program sets rates at the county level by crop
Eligible production may either be put under loan or have a loan deficiency payment (LDP) taken on it
The amount of the loan or LDP depends on the quantity you wish to use in the program

16. Marketing Loans and LDPs
The program is based on the county in which you will store your crop, not the county in which you produce the crop
There may be advantages to growing the crop in one county and storing in another

17. Marketing Loans
Loans are for 9 months, but can be redeemed at any time
To pay back the loan, you may either forfeit the crop as payment or pay an amount set by the minimum of the posted county price (PCP) or the loan rate plus interest
Possible to pay back the loan at less than face value

18. Posted County Prices (PCP)
Estimate of local market prices
Usually based on 2 terminal markets, takes the higher price
Terminal prices are adjusted for transportation costs and other factors

19. PCP Calculation
Example: Story County, Iowa, Corn 11/10/05
PCP = $1.40

20. Loan Deficiency Payments (LDP)
Alternative to taking the loan
Works like taking the loan and paying it back the same day
Can not take the loan and LDP on the same quantity
If the PCP is greater than the loan rate, then you can only take the loan

21. LDP Calculation
Example: Story County, Iowa, Corn 11/10/05

22. Loan vs. LDP The loan is like a free put option at the loan rate
The loan protects you against downside price movements, but costs you interest if prices exceed the loan rate
The LDP exposes you to downside price movements, but there are no interest charges

23. Loan vs. LDP

24. Class web site: