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2018 Farm Bill: Context and Policies. University of Minnesota, Colloquium in Sustainable Agriculture 10-25-18 print

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2018 Farm Bill: Context and Policies. University of Minnesota, Colloquium in Sustainable Agriculture 10-25-18 print

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Presentation on Federal Farm Policy and development of 2018 Farm Bill within the context of the current conditions in the agriculture sector.

Presentation on Federal Farm Policy and development of 2018 Farm Bill within the context of the current conditions in the agriculture sector.

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2018 Farm Bill: Context and Policies. University of Minnesota, Colloquium in Sustainable Agriculture 10-25-18 print

  1. 1. Brad Jordahl Redlin October 25, 2018 Context and Policies Colloquium in Sustainable Agriculture
  2. 2. 1. Federal Farm Policy in Context 2. Production Policy 3. Conservation Policy 4. Risk Management Policy Context and Policies
  3. 3.  51 percent of total U.S. land is in agricultural use (61 percent of lower 48 states).  Urban land use is 2.7 percent.
  4. 4. ► Number of U.S. farms for 2017 is estimated at 2.05 million, down 12,000 farms from 2016. ► Total land in farms, 910 million acres, decreased 1 million from 2016. ► Average farm size for 2017 is 444 acres, up 2 acres from the previous year.
  5. 5.  Farm numbers (and losses) a matter of USDA classification.
  6. 6.  Crop prices had been strong in previous farm bill cycles...
  7. 7.  Crop prices had been strong in previous farm bill cycles...
  8. 8. TRADE WAR U.S. has so far shipped just 201,700 metric tons of soybeans to China this marketing year (18/19), a 96 percent drop compared with the same time last year (4,658,900 metric tons). China soybean imports Marketing Year 17/18: 27.7 Million metric tons Marketing Year 16/17: 36.1 Million metric tons Swanson, K., G. Schnitkey and J. Coppess. "Reviewing Prices and Market Facilitation Payments." farmdoc daily (8):188, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, October 11, 2018. TARRIFS! retaliatory TARRIFS! MFP!
  9. 9.  …and not just crops….
  10. 10.  Price and profitability.  Every farm is different, but USDA has survey data and estimates to summarize costs and returns. Corn production costs and returns per planted acre, excluding Government payments, Heartland, 2010-2016 Item 2010 2011 2012 2013 2014 2015 2016 dollars per planted acre Gross value of production Primary product: Corn grain 723.11 883.50 811.58 757.35 628.29 633.36 610.08 Secondary product: Corn silage 0.24 0.42 0.33 0.35 0.29 0.30 0.24 Total, gross value of production 723.35 883.92 811.91 757.70 628.58 633.66 610.32 Operating costs: Seed 87.72 90.78 98.83 104.96 108.41 109.17 106.49 Fertilizer 2/ 118.09 155.18 164.77 161.58 156.78 144.54 122.22 Chemicals 26.95 26.95 28.31 29.40 29.94 28.66 29.60 Custom operations 3/ 15.25 15.53 15.84 16.47 16.93 17.66 17.96 Fuel, lube, and electricity 22.18 27.76 25.98 27.62 28.20 18.14 16.17 Repairs 21.77 22.45 23.12 23.34 23.79 23.75 23.79 Purchased irrigation water 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Interest on operating capital 0.29 0.17 0.24 0.16 0.12 0.29 0.73 Total, operating costs 292.25 338.82 357.09 363.53 364.17 342.21 316.96 Allocated overhead: Hired labor 2.61 2.64 2.73 2.81 2.86 2.97 3.07 Opportunity cost of unpaid labor 20.21 20.42 21.15 21.76 22.17 22.97 23.80 Capital recovery of machinery and equipment 81.22 86.16 90.47 93.06 96.50 98.74 99.43 Opportunity cost of land 150.49 163.77 184.42 200.65 208.03 212.46 192.39 Taxes and insurance 7.77 8.18 8.26 8.42 8.58 10.10 10.04 General farm overhead 17.37 17.91 18.45 18.63 18.98 18.95 18.98 Total, allocated overhead 279.67 299.08 325.48 345.33 357.12 366.19 347.71 Total, costs listed 571.92 637.90 682.57 708.86 721.29 708.40 664.67 Value of production less total costs listed 151.43 246.02 129.34 48.84 -92.71 -74.74 -54.35 Value of production less operating costs 431.10 545.10 454.82 394.17 264.41 291.45 293.36 Supporting information: Price (dollars per bushel at harvest) 4.33 5.70 6.82 4.59 3.51 3.64 3.28 2/ Cost of commercial fertilizers, soil conditioners, and manure. 3/ Cost of custom operations, technical services, and commercial drying. Source: Compiled by ERS using Agricultural Resource Management Survey data and other sources.
  11. 11.  But those prices don’t have a profound effect on food prices
  12. 12.  Environmental impact from agriculture receives broad attention.  Industry and consumers are engaging the issue. Lake Erie algae issues may strike Cleveland New Jersey-Size 'Dead Zone' Is Largest Ever in Gulf of Mexico
  13. 13.  Long history of legislative engagement with agriculture.  In general terms there have been 17 Farm Bills, beginning with the Agricultural Adjustment Act of 1933.
  14. 14.  Farm Bill reauthorized every 5 years--or will revert to 1949 “Permanent Law.”
  15. 15.  Farm Bill reauthorized every 5 years--or will revert to 1949 “Permanent Law.”
  16. 16.  There are 3 means for delivering $ to agriculture via Farm Bill.  Commodity Subsidies, Conservation Programs, Crop Insurance.
  17. 17. ►Nutrition programs major aspect of USDA operations. ►Farm Bill: SNAP (food stamps). ►Non-Farm Bill: National School Lunch Program; Women, Infants and Children; Child&Adult Care Food Program; School Breakfast Program. ► Major Conflict in 2018 House Farm Bill • work requirement • training programs
  18. 18. 1. Federal Farm Policy in Context 2. Production Policy 3. Conservation Policy 4. Risk Management Policy Context and Policies
  19. 19. CCP CYs 2010-12 Wheat $4.17/bu Corn $2.63/bu Grain sorghum $2.63/bu Barley $2.63/bu Oats $1.79/bu Upland cotton $0.7125/lb Long-grain rice $10.50/cwt Medium-grain rice $10.50/cwt Peanuts $495/ton Soybeans $6.00/bu Other oilseeds $12.68/cwt Loan Rate CYs 2010-12 Wheat $2.94/bu Corn $1.95/bu Grain sorghum $1.95/bu Barley $1.95/bu Oats $1.39/bu Long-grain rice $6.50/cwt Medium-grain rice $6.50/cwt Soybeans $5.00/bu Other oilseeds $10.09/cwt Upland cotton $0.52/lb ELS cotton $0.7977/lb Peanuts $355/ton  Commodity supports were generally consistent in recent Farm Bills (‘96, ’02, ’08).  Paid on floor & target prices… and at a standard rate de-coupled from production. Direct Payment rate Wheat $0.52/bu Corn $0.28/bu Grain sorghum $0.35/bu Barley $0.24/bu Oats $0.024/bu Upland cotton $0.0667/lb Long-grain rice $2.35/cwt Soybeans $0.44/bu
  20. 20. Price Loss Coverage (PLC) • 85% base • SCO Wheat $5.50 per bushel Corn $3.70 per bushel Grain sorghum $3.95 per bushel Barley $4.95 per bushel Oats $2.40 per bushel Long-grain rice $14.00 per hundredweight Medium-grain rice $14.00 per hundredweight Soybeans $8.40 per bushel Other oilseeds $20.15 per hundredweight Loan Rate Wheat $2.94/bu Corn $1.95/bu Grain sorghum $1.95/bu Barley $1.95/bu Oats $1.39/bu Long-grain rice $6.50/cwt Medium- grain rice $6.50/cwt Soybeans $5.00/bu Other oilseeds $10.09/cwt Upland cotton $0.42/lb to $0.52/lb ELS cotton $0.7977/lb Peanuts $355/ton  2014 law maintained MAL; PLC alternative to CCP; and ARC “shallow loss.” (choose one time between PLC and ARC) Agricultural Risk Coverage (ARC) Pymts no greater than 10 percent of benchmark revenue ARC-county (85% base) avg county yield times national farm price drops below 86% of county benchmark revenue (5-year Olympic avg county yield times > 5-year Olympic avg national or reference price each year) ARC-individual (65% base) difference between 86% individual farm guarantee (the 5-year Olympic avg individual yield times > 5-year Olympic avg of national or reference price each year) and actual individual farm revenue summed across all commodities (sum all covered commodities avg revenue weighted by plantings)
  21. 21. Price Loss Coverage (PLC) • 85% base • SCO Wheat $5.50 per bushel Corn $3.70 per bushel Grain sorghum $3.95 per bushel Barley $4.95 per bushel Oats $2.40 per bushel Long-grain rice $14.00 per hundredweight Medium-grain rice $14.00 per hundredweight Soybeans $8.40 per bushel Other oilseeds $20.15 per hundredweight Loan Rate Wheat $2.94/bu Corn $1.95/bu Grain sorghum $1.95/bu Barley $1.95/bu Oats $1.39/bu Long-grain rice $6.50/cwt Medium- grain rice $6.50/cwt Soybeans $5.00/bu Other oilseeds $10.09/cwt Upland cotton $0.42/lb to $0.52/lb ELS cotton $0.7977/lb Peanuts $355/ton  2014 law maintained MAL; PLC alternative to CCP; and ARC “shallow loss.” (choose one time between PLC and ARC) Agricultural Risk Coverage (ARC) Pymts no greater than 10 percent of benchmark revenue ARC-county (85% base) avg county yield times national farm price drops below 86% of county benchmark revenue (5-year Olympic avg county yield times > 5-year Olympic avg national or reference price each year) ARC-individual (65% base) difference between 86% individual farm guarantee (the 5-year Olympic avg individual yield times > 5-year Olympic avg of national or reference price each year) and actual individual farm revenue summed across all commodities (sum all covered commodities avg revenue weighted by plantings)
  22. 22. Permanent Law “floor price”: Wheat $13.20 Corn $6.50 Cotton $1.30 Milk $39.08 Soybeans…soybeans…?
  23. 23.  ARC explained …maybe. $4.50 x 180 = $810 x 0.86 = $696.60/acre $3.20 x 180 = $576/acre $696.60 - $576 = $120.60 x 50 acres = $6,030 x 0.85 = $5,125.50 or $102.51/acre ($810 x 0.10 = $81/acre) $81 x 50 = $4,050 ARC payment
  24. 24.  Commodity program payments made on “base acres.”  historical planted acreage registered for each farm.  may plant any crop*; payments based on “base” and historical yield. Soybeans 35 acres Corn 50 acres Wheat 15 acres  2014 Farm Act permitted one-time option to update base (no increase in acres) and yield (2009 - 2012)  base stays with land. XYZ Farm 100 acres
  25. 25. Price Loss Coverage and Agriculture Risk Coverage - planting provisions -  Previous policy (multiple farm bills) lost acre-to-acre DP and penalized market value of vegetables.  PLC and ARC enrollment permits fruit, vegetables, and wild rice on up to 15% of registered farm base acres. non-base acres base acres no penalty <15% base acres: no penalty >15% base acres: payment acres reduction acre-for- acre exceding15% (NOTE: 35% individual ARC)
  26. 26. 1. Federal Farm Policy in Context 2. Production Policy 3. Conservation Policy 4. Risk Management Policy Context and Policies
  27. 27.  Conservation Programs expanded with ‘85 Farm Bill and generally grew consistently in subsequent Farm Bills (‘90, ‘96, ’02, ’08).  Conservation Title contains a suite of programs.  Programs meet different goals and utilize different methods. Some contraction in programs with 2014 Farm Act. Wetlands Reserve Program, Farmland Protection Program, and Grassland Reserve Program (easement) consolidated into: Agricultural Conservation Easement Program (ACEP) Agricultural Water Enhancement Program, Chesapeake Bay Watershed Program, Cooperative Conservation Partnership Initiative, Great Lakes Basin Program are consolidated into: Regional Conservation Partnership Program (RCPP) Wildlife Habitat Incentive Program is merged into: Environmental Quality Incentives Program (5% dedicated wildlife) Grassland Reserve Program (rental) is now through: Conservation Reserve Program (grassland up to 2 million acres)
  28. 28.  ‘Working lands’ programs are dominant.
  29. 29. Conservation Compliance Highly Erodible Land (HEL) Compliance, Sodbuster, Wetland Conservation (Swampbuster)  Public provides financial support via USDA payments.  Recipients protect soil and wetlands for the public.  Penalties are reduction or loss of farm program payments for draining existing wetlands or not maintaining soil protections. Ducks Unlimited photo NRCS photoNRCS photo
  30. 30.  Farm Bills set mandatory spending levels; appropriators nonetheless do otherwise.  Conservation CHIMPS cut $1.6 billion since 2014 Farm Bill.  House 2018 bill further consolidates Conservation (eliminates CSP)
  31. 31. 1. Federal Farm Policy in Context 2. Production Policy 3. Conservation Policy 4. Risk Management Policy Context and Policies
  32. 32.  Federal Crop Insurance is subsidized for producers and insurance companies.  National average is 62% of premium is paid by subsidy, often even higher.  Crop Insurance exempted from compliance in 1996 Farm Bill. Reinstated in 2014. From written Testimony of William Cole, Chairman, Crop Insurance Professionals Association- Committee on Agriculture, Nutrition, and Forestry, July 25, 2017.
  33. 33.  Subsidized risk reduction, without compliance checks and balances, can incent unintended consequences:  Producers “leave” the farm program to avoid compliance.  Producers may take risks with land or practices.
  34. 34.  Participation in Crop Insurance is high across major commodities.  Premium subsidies, Revenue policies have been growing rapidly.
  35. 35.  Fundamental crop insurance formula: ((Yield * Coverage) * price) * acres = Insured Revenue Yield – Actual Production History (APH) minimum 4 yrs, maximum 10 yrs Coverage – percentage of yield/APH insured like a deductible, select from sequence 50% - 85% Price – generally, higher of spring/harvest price average futures prices Feb or Oct Acres – acres planted to insured crop optional “units,” e.g. all acres of one crop in county ((185 * 80%) * $4.62) * 500 = $341,880 insured revenue (185 * $3.49) * 500 = $322,825 actual revenue $19,055 indemnity
  36. 36.  Crop Insurance dominant in Farm Bill policy and budget.  Extended low-price cycle is challenge to revenue insurance.  Climate change is challenge to APH (provisions enacted to minimize ‘bad’ years). 2018
  37. 37.  Crop Insurance is lynch pin of Farm Bill policy for farmers; most cited priority in 2018 Farm Bill.  Presently in dispute: Title I distribution of $; House SNAP; House Title II consolidation.  Wither 2018 Farm Bill? 1) Lame Duck passage? 2) Extension? 3) New leadership/bill? 4) Epic fail?  What are U.S. ag’s needs? 1) Resilient Systems, 2) Consumers/Buyers. Context and Policies 2018
  38. 38. bjredlin@gmail.com Brad Jordahl Redlin bjredlin@gmail.com 651.270.0564 www.sustainableagriculture.netwww.ers.usda.gov/ www.fsa.usda.gov/FSA/ Context and Policies

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