1. APCA The 2012 Corn Predicament Daryll E. Ray and Harwood D. Schaffer University of Tennessee Institute of Agriculture Agricultural Policy Analysis Center National Packing Meeting United Food and Commercial Workers Chicago, Illinois August 15, 2012

2. APCA The Situation Most wide-reaching drought since 1956 Hottest July on record dating back to 1895 Corn yield by USDA as of Aug. 10 –Down 16% from last year’s reduced yield –Down 25% from more normal yield three years ago, 2009 Corn production projected to be lowest since 2006

3. APCA Want to do Three Things Visually put the corn “The Situation” into historical perspective No Reserve? What is the deal with that? –Haven’t we, and other countries, had reserves programs in the past? What if commodity programs between 1998 and 2010 had been replaced with a “reserve program?” (NFU study)

4. APCA Corn Yield Bushels/Acre -32 Bu. -28% -35 Bu. -29% -41 Bu. -25% -24 Bu. -16%

5. APCA Corn Yield and Production Bushels/AcreMil. Bu. Yield Production -28% -49% -29% -31% 88 83 -16% -13% 12

6. APCA Corn Production Utilization and Reserves Mil. Bu. Utilization Production Reserves (CCC and FOR)

7. APCA Corn Price & Reserves Mil. Bu. Reserves 717796 Price

8. APCA Corn Price and Feed Demand Mil. Bu. Price Feed

9. APCA Reserves Are Not a New Idea Egypt –1750 BC –Biblical story of Joseph and Pharaoh –7 fat years followed by 7 lean years China –Beginning in 54 BC –Had its ups and downs over period of 2,000 years –“Constant Normal Granary” –China currently holds large stocks for domestic needs

10. APCA US Experience United States –1929-1996 AD –Federal Farm Board – stock holding in attempt to stabilize price –Commodity Credit Corporation Stabilize price Ever Normal Granary Manage supply –Factors that brought reserves into disrepute Inconsistent management or mismanagement by those who did not believe in rationale for reserves and price stabilization Dumping of excess on world market

11. APCA Arguments Against Reserves Commercials argued they would provide reserves –Government “interference” not needed Not to worry –Free trade will guarantee availability from one country or another Too expensive –Procurement and storage costs are too costly Requires a large physical stock

12. APCA Argument Analysis Assertions not always true –Commercials have no incentive to hold stocks –Supply disruptions can affect more than one supplier in a given year –One has to compare costs of storage against a no-reserve alternative –Presence of reserve stocks calms market behavior Overriding Issue: Countries view food as a national security issue

13. APCA Reserve Objectives Prevent crises: Consumer price and availability crises Producer crises (livestock producers when prices are “high;” followed by extraordinary low crop prices for crop farmers) The objective is NOT to fix prices But to work with the market to ameliorate impacts of extreme price fluctuations Food availability/food prices Severe economic disruptions Environmental damages

14. APCA Hypothetical Price Band for Corn

15. APCA A Market Directed Inventory System (MDIS) National Farmers Union February 29, 2012 Daryll E. Ray and Harwood D. Schaffer Agricultural Policy Analysis Center University of Tennessee Institute of Agriculture

16. APCA Policy Description Objectives –Bulk of revenue from market receipts –Reduce government payments while maintaining farm income –Reduce price volatility

17. APCA Policy Description MDIS Specifications for 1998-2010 Study Period –Initial corn loan rate set at midpoint between variable and full cost of production –Indexed with a prices paid by farmers index –Other crop loan rates set to historic ratios with corn –Release price is set at 160% of loan rate

18. APCA Policy Description MDIS Specifications for 1998-2010 Study Period –MDIS maximums Corn – 3 billion bushels Wheat – 800 million bushels Soybeans – 400 million bushels –Farmer storage payment rate 40¢/bu./yr –Set-aside available if needed –Eliminate Direct Payments, LDPs, & CCPs

19. APCA 8 Crops - Government Payments Historic Baseline $152 Billion (Total 1998-2010) MDIS $56 Billion $ Billion

20. APCA 8 Crops – Government Payments Average Per Year Over Each Period Historic Baseline MDIS $ Billion $14.8 $4.8 $6.8 $3.6 $11.7 $4.3

21. APCA Corn Prices Historic Baseline MDIS Release Price Loan Rate

22. APCA Corn Prices Average Per Year Over Each Period Historic Baseline MDIS $2.05 $2.68 $4.02 $3.71 $2.81 $3.07

23. APCA Corn Exports - Quantity Historic Baseline MDIS Million Bu.

24. APCA Corn Exports - Value Historic Baseline MDIS $ Billion

25. APCA Corn Value of Exports Average Per Year Over Each Period Historic Baseline MDIS $ Billion $3.9 $4.8 $8.3 $7.7 $5.6 $5.9

26. APCA MDIS Stocks Corn Wheat Million Bu. Soybeans

27. APCA Corn – Value of Production plus Government Payments Average Per Year Over Each Period Historic Baseline MDIS $ Billion $26.4 $28.2 $51.5 $46.5 $36.1 $35.2

28. APCA Realized Net Farm Income Average Per Year Over Each Period Historic Baseline MDIS $ Billion $49.8 $50.8 $55.8 $51.5 $52.1 $51.1

29. APCA Summary of Findings Over the Study Period, 1998-2010, with MDIS in Place: –Government payments 60% lower –Increased reliance on market receipts –Value of exports $4.9 billion higher –Lower price volatility benefitting: Consumers Crop farmers Livestock producers and industrial users

30. APCA Thank You

31. APCA To receive an electronic version of our weekly ag policy column send an email to: dray@utk.edu requesting to be added to APAC’s Policy Pennings listserv Weekly Policy Column

32. APCA Corn Feed FSI Exp 1,000 Bu. Food, Seed, Industrial Feed Exports