1. ECON 337: Agricultural Marketing Chad Hart Associate Professor chart@iastate.edu 515-294-9911 Lee Schulz Assistant Professor lschulz@iastate.edu 515-294-3356

2. Old vs. New Farm Bill  Direct Payments (DP)  Countercyclical Payments (CCP)  Marketing Loans (LDP)  Revenue Countercyclical Payments (ACRE)  Countercyclical Payments (PLC)  Marketing Loans (LDP)  Revenue Countercyclical Payments (ARC) New programs, but they have strong similarities to previous programs

3. What Stayed the Same? Loan Rates  Set by law  Corn$1.95  Wheat$2.94  Soybean$5.00  Sorghum$1.95  Barley$1.95  Oats$1.39

4. Two Waves  First wave: Choice on base acreage and yield updating  Due February 27  Second wave: Choice on farm bill programs  Due March 31  But actually, I will argue the deadline is March 15

5. Base Acres  Keep current base acres or do a one-time “reallocation” of base acres  Reallocation allowed to covered commodities planted between 2009 and 2012  Reallocation in proportion to the ratio of 4-yr average plantings/prevented plantings  Total number of base acres limited to total of existing base acres

6. Payment Yields  Keep current CCP payment yield or do a one-time “update” of payment yield on a commodity-by-commodity basis  Update: 90% of 2008-2012 yield per planted acre on the farm  If the farm yield is below 75% of the 2008- 2012 average county yield, then the farm yield is replaced by 75% of the 2008-2012 average county yield

7. Payment Acres  For PLC and ARC at the county level, 85% of base acres  For ARC at the individual level, 65% of base acres

8. Producer Choice  Have one-time choice between:  PLC or ARC (can pick by commodity)  If ARC is chosen, pick between county and individual coverage  If individual coverage is chosen, must be taken for all covered commodities on the farm  2014-2018 crop years

9. Reference Prices  Reference Prices  Corn$3.70  Wheat$5.50  Soybean$8.40  Sorghum$3.95  Barley$4.95  Oats$2.40  Old Target Prices  Corn$2.63  Wheat$4.17  Soybean$6.00  Sorghum$2.63  Barley$2.63  Oats$1.79

10. PLC instead of CCP  Price-based support program  Reference prices establish targets  Works like CCP  Payment rate = Max(0, Reference price – Max(MYA price, Loan rate))  Payment = Payment rate * Payment yield * Payment acres

11. PLC: Corn Payment Potential Notes: PLC payments are made on 85% of base acres. 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 Reference Price = $3.70 per bushel Payment Yield = 150 bushels per acre

12. PLC vs. CCP and DP

13. ARC instead of ACRE  Revenue-based support program  Revenues based on 5-year Olympic average yields and prices  Yields and prices have cups (County T- yields and reference prices)  Triggers at county or individual farm level, instead of state level

14. ARC Payment Rate  Payment rate = Max(0, Min(10% of Benchmark revenue, Actual crop revenue – ARC guarantee)) So the basic payment structure is the same as it was under ACRE

15. ARC-CO: 2014 Corn Revenue Guarantee Notes: Revenue Guarantee equals 86% of Benchmark. YearYieldMYA PriceARC Price 2009157.0$3.55$3.70 2010186.0$5.18 2011187.0$6.22 2012163.0$6.89 2013156.0$4.46 Oly. Ave.168.7$5.29 Benchmark Revenue = $892.42 per acre ARC Revenue Guarantee = $767.48 per acre

16. Revenue Programs ARC-CountyARC-Individual Benchmark revenue 5-yr OA county yield * 5-yr OA MYA price Sum across crops of [5-yr OA (farm yield * MYA price) *crop acreage] Actual crop revenue County yield * Max(MYA price or loan rate) Sum across crops of [Farm production * Max(MYA price or loan rate)] / Total planted acres of all covered crops Revenue guarantee 86% of benchmark  Think of ARC-County as crop-by-crop  Think of ARC-Individual as whole farm

17. Conservation  Conservation Reserve Program  27.5 million acres in 2014  26 million acres in 2015  25 million acres in 2016  24 million acres in 2017 and 2018  Grassland enrollment capped at 2 million acres

18. Supplemental Coverage Option (SCO)  An additional policy to cover “shallow losses”  Shallow loss = part of the deductible on the producer’s underlying crop insurance policy  SCO has a county-level payment trigger  Indemnities are paid when the county experiences losses greater than 14%  Premium subsidy: 65%  Starts in 2015  Can’t have ARC and SCO together

19. RP RPHPE YP SCO Supplemental Coverage Option (SCO)

20. Three Choices  PLC + SCO  Price protection with top-up county-level insurance protection  ARC-County  County-level revenue protection based on historical averages  ARC-Individual  Farm-level revenue protection based on historical averages  Choice holds for 2014-2018 crop years

21. Neither pay Both pay PLC pays, ARC does not ARC pays, PLC does not

22. Class web site: http://www.econ.iastate.edu/~chart/Classes/econ337/ Spring2015/ Lab in Heady 68. See you there.