1. Farm Bill Outlook Norman L. Dalsted, Ph.D. Professor Department of Agricultural and Resource Economics Colorado State University Source: Dr. Brad Lubben Policy Specialist University of Nebraska Lincoln, NE

2. Drivers of Ag Policy u Economy u Budget u Trade u Politics

3. The Economic Setting U.S. Net Farm Income and Government Payments Source: USDA Economic Research Service 1996 Farm Bill 2002 Farm Bill 2008 Farm Bill 1985 Farm Bill 1990 Farm Bill Data file: ag value added – nebraska and us.xlsx

4. Federal Budget Challenges Source: Congressional Budget Office, March 2012 Data file: budget and economic numbers.xlsx

5. Federal Budget Challenges Source: Congressional Budget Office, March 2012 Data file: budget and economic numbers.xlsx

6. Significant Tax Law Changes for 2012 and 2013 If Congress does not act to extend certain provisions. 2012 u AMT (Congress had temporarily raised exemption levels). Levels expire and replaced with lower levels. u Tuition and Fees Deduction: eliminated u Section 179: Expense up to $139,000 in 2012 (down from $500,000 in 2011). Drops to $25,000 in 2013.

7. Significant Tax Law Changes continued 2013 u New Tax Brackets: Currently 10, 15, 25, 28, 33, and 35 percent. Increase to 15, 28, 31, 36 and 39.6 percent u Marriage penalty: Change back to double in 2013 (enjoyed a 33% discount prior) u Estate Tax: rate increases from 35 to 55% and exemption drops from $5mm to $1mm.

8. Significant Tax Law Changes continued u Capital gains: currently 0 rate for 10% & 15% tax brackets. Will apply to 15% bracket next year and rate increases 20%. u Short Sales and Foreclosures: no tax on amount of debt forgiven but expires this year (2012). u Payroll Taxes: 2% cut in social security taxes ends this year.

9. Significant Tax Law Changes continued u Health Insurance Tax: Under new law an additional 0.9% in Health Insurance Tax applied to wages of $250,000 for married filing joint return, $125,000 for single filers. u Medical expenses: currently can take expenses above 75% of adjusted gross income. In 2013 rate increases to 10%.

10. Recommendations to the Super Committee in 2011 From the Agriculture Committee Leadership u Total spending cuts of $23 billion over 10 years from baseline Area Proposed Cut 2012-2021 Baseline % Cut Commodities$15 billion$64 billion24% Conservation$6 billion$63 billion10% Nutrition (SNAP)$4 billion$700 billion0.6%

11. Farm Bill Development in 2012 Area Updated 2013-2022 Baseline Super Committee Proposed Cut Senate Proposal (S3240) House Proposal (HR6083) Commodities $60 billion$15 billion-$19.4 billion-$23.6 billion Crop Insurance $89.5 billion+$5.0 billion+9.5 billion Conservation $64 billion$6 billion-$6.4 billion-$6.1 billion Nutrition (SNAP)$772 billion$4 billion-$4.0 billion-$16.1 billion

12. Farm Bill Outlook u Commodity program safety net has evolved over time l Price support and supply control l Income support tied to price and revenue l Risk management u Expected future program directions l Crop insurance as the foundation l Revenue safety net to complement crop insurance l Price safety net for as alternative? l No direct payments l Irrelevant marketing loan?

13. Understanding Shallow Loss Coverage vs. Safety Net Coverage Shallow Loss CoverageSafety Net Coverage Market Receipts Market Price * Yield Crop Ins Guarantee Exp Revenue Avg Revenue Producer Loss Crop Ins Indemnity Shallow Loss Coverage Market Receipts Market Price * Yield Crop Ins Guarantee Exp Revenue Avg Revenue Producer Loss Crop Ins Indemnity Safety Net Guarantee Safety Net Coverage

14. Farm Bill Safety Net Proposal Comparison ComponentSenate Proposal (S3240)House Proposal (HR6083) GuaranteeFarm revenueCounty revenue National price Benchmark 5-yr Oly average yield x 5-yr Oly average national price* 5-yr Oly average yield x 5-yr Oly average national price Fixed reference prices Corn = $3.70 Soy = $8.40 Wheat = $5.50 Payment trigger Revenue<89% of benchmark Revenue<85% of benchmark National price< reference price Payment coverage 79 - 89% of benchmark 75 - 85% of benchmark Loan rate - reference price Payment rate 65% of planted acres (45% of prevent-plant) 80% of planted acres (45% of prevent-plant) 85% of planted acres (30% of prevent-plant) CCP yield x 85% of planted acres (30% of prevent- plant) Loan rateSame as 2008: Corn = $1.95, Soybeans = $5.00, Wheat = $2.94 * Minimum benchmark reference price for peanuts ($530/ton) and rice ($13.00/cwt)

15. Additional Safety Net Proposals – Crop Insurance u Crop insurance l Supplemental Coverage Option (SCO) Shallow-loss area-based coverage available on top of individual insurance l Stacked Income Protection Plan (STAX) supplemental revenue coverage for cotton Shift from commodity program to crop insurance for cotton to address WTO issues But, a minimum price of $0.6861/pound in House proposal l Other proposed provisions Organic price Enterprise units – permanent authorization – Irrigated vs. dryland split Premium subsidy reduction on native sod converted to crop production

16. Safety Net Comparison Expected Program Payments plus Changes in Crop Insurance Net Indemnities ARC/RLC/PLC plus Changes in Crop Insurance Senate ARC/STAX/SCO House PLC/RLC/STAX/SCO $/acre Corn$21.05$17.23 Soybeans10.358.61 Wheat7.7913.61 Upland Cotton39.7340.89 Sorghum6.607.24 Rice16.8894.30 Barley7.7628.28 Peanuts15.4585.62 Source: FAPRI, University of Missouri. Report #05-12, August 2012.

17. Additional Comments u Existing federal safety net is already overly generous. (60% subsidy of crop insurance premiums) u Increased from $200 million in 1991 to 5.4 billion in 2009. u Also disaster assistance is available with extreme crop failure (due to weather). u Record net farm income in 2012—expected 11 billion in federal subsidies. - net income closed to $100 billion to $122 billion.

18. Shallow Loss Program u Shallow loss would significantly reduce risk and provide an income guarantee. u Congressional Budget Office estimates spending would reach 28.5 billion over 10 years. ($3.2 billion per year). u If prices fall to the average levels observed in 1996-2011—expenditures could reach $50 to $75 billion over 10 years

19. Issues 1) Taxpayer subsidies so heavily mitigate farmers’ risk as they lack any incentive to make prudent decisions. 2) Could violate WTO rules as payments are tied to production. (e.g. cotton objections by Brazil) 3) Benefits primarily to large operations.

20. Additional Safety Net Proposals – Disaster Assistance u Livestock Indemnity Program (LIP) l Coverage for mortality losses above normal due to disaster conditions u Livestock Forage Disaster Program (LFP) l Coverage for livestock producers for forage losses due to drought conditions u Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish (ELAP) l Coverage for producers due to disaster losses including weather, disease, etc. u Tree Assistance Program (TAP) l Coverage for orchardists and nursery growers for tree, bush, and vine losses due to natural disaster

21. Farm Bill Outlook u Potential compromise and safety net implications l Revenue vs. price safety net option l No direct payments l Existing loan rates l Expanded role for crop insurance l Re-authorized disaster assistance

22. Farm Bill Outlook u Conservation l Consolidation of programs – 23 into 13 l Conservation Reserve Program Cap cut to 25 million acres by FY2017 l Agricultural Conservation Easement Program WRP, FPP, GRP combined Authorized with expanded budget in Senate bill l Working Lands Programs CSP and EQIP (WHIP merged into EQIP) Reauthorized with reduced budget growth l Conservation compliance Proposed delayed linkage to crop insurance in Senate bill

23. Farm Bill Outlook u Timing l No farm bill in September or October No consideration of full bill in House Disaster assistance bill for 2012 and 3-month extension likely before September 30 expiration of current farm bill l Full farm bill finished later Negotiations on-going Final bill in late 2012 attached to must-have legislation? Delay into 2013 with more temporary extensions, more potential budget challenges, and a new Congress?

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