1. George Haynes Professor and Extension Specialist Montana State University Vincent Smith Professor Montana State University Ft. Peck Community College/MSU Energy Conference October 30, 2008

3.  By itself, the Commodity Credit Corporation manages funds for about 80 commodity and conservation programs  The Risk Management Agency operates hundreds of crop insurance programs  CSREES manages dozens of research and education programs  Trade Issues are addressed in a separate title  The 2008 Farm Bill will increase the complexity of farm programs and create new choices for many producers

4.  Energy, Livestock, and Beginning Farmer programs will now have their own title  A new Disaster Aid Program has been created.  An alternative commodity program - the Average Revenue Program - has been established  The Food Stamp Program has been renamed and revamped  Conservation programs have been renewed and some renamed

5.  Marketing Loan/Loan Deficiency Program: Price supports for some crops. Changes have been made to some loan rates.  Direct Payments: fixed and unrelated to current production decisions and, for most operations, based on farm level production in the early and mid 1980s. Payments have been reduced for three years in the 2008 (farmers will be paid on only 83.3 percent of base acres in 2009, 2010 and 2011 with the goal of reducing annual direct payments by about $100 million, a 2 percent reduction).

6.  Counter Cyclical Payments (linked to major crops): triggered by low prices and therefore not fixed, but unrelated to current production decisions because, as with direct payments, the payment basis is predetermined by historical yields. Some commodity target prices are increased but with no measurable incentive effects. The 2 percent reduction in the base area eligible for payments is also applied to counter cyclical payments.  A new Average Crop Revenue Election (ACRE) Program has been introduced. Farmers may opt to participate in the new program but must take substantial reductions in the direct payments they receive and the loan rates for which they are eligible.

7.  Marketing Loan/loan Deficiency Payment Programs: Price Supports for a few major crops have been increased. LDP’s now based on the average market price over the preceding 30 days (not the current day’s price).

8. New Loan Rates for Selected Crops CropOld (2002)New (2008) Wheat (bu)$2.75$2.94 Corn (bu)$1.95 Barley (bu)$1.85$1.95 Soybeans (cwt)$5.00 Other Oilseeds (cwt)$9.30$10.09 Oats (bu)$1.33$1.39

9.  Target Price/ Countercyclical Payment Programs: Target prices have been increased for a few major crops, but not by large amounts.

10. Proposed Changes to Selected Target Prices CropOld (2002)New (2008) Wheat (bu)$3.92$4.17 Corn (bu)$2.63 Barley (bu)$2.24$2.63 Soybeans (cwt)$5.80$6.00 Other Oilseeds (cwt) $10.10$12.68 Oats (bu)$1.44$1.79

12.  Direct payments are limited to $40,000 per eligible person.  Countercyclical payments are limited to $65,000 per eligible person (farmer/rancher and spouse).  Loan rate payments are unlimited.

13.  No three entity rule: payment limits only apply to individuals, but a spouse counts as a separate individual  Individuals involved in farming with Adjusted Gross Incomes in excess of $750 thousand in farm income lose direct payments.  Individuals not involved in farming with Adjusted Gross Incomes in excess of $500 thousand in farm income lose all program eligibility.

15.  New commodity program designed to provide revenue support to farmers as an alternative to the price support that farmers are used to receiving from commodity programs.

16.  Critical considerations  Double trigger  State revenue for the crop year for the covered commodity is less than the ACRE program guarantee revenue  Actual farm revenue for the crop year for the covered commodity is less than the farm ACRE benchmark revenue

17.  Critical Considerations (continued)  10% cup/cap  ACRE program guarantees for 2010 – 2012 will not increase or decrease by more than 10% from the preceding crop year  Benefits of previous farm programs reduced  No countercyclical payments, 20% reduction in direct payments and 30% reduction in marketing assistance loan rate.

18.  Critical Considerations (continued)  Irrevocable sign-up for 2009 though 2012: once a farm signs up, it is committed to ACRE until 2012  ACRE must be elected for all eligible program crops planted on the farm  Crop insurance is still important  Not a “No Brainer”  Each producer needs to make their own decision about whether to stay with the existing program or sign up for ACRE

19.  Analysis  Triggered ACRE payments in 7 of 30 years  5 times farm (county) triggered with no State trigger  Historical assessment  Over the past 10 years, current farm program paid more than ACRE for many counties  Future assessment  Deterministic – farmers need to use their own numbers  Current prices, and last year’s prices, for wheat and barley are much higher than in previous years

20.  Direct payments are limited to $40,000 per eligible person minus an amount equal to the 20% reduction in the farm’s direct payments.  ACRE payments are limited to $65,000 plus an amount equal to the 20% reduction in the farm’s direct payments.

23. ACRE EXAMPLES:  State Wide Olympic Average Wheat Yield is 39 bushels per acre over the past five years  Initial Two Year National Average Price is $7.33 per bushel  Estimate Total Per Acre Payments and Current Program Payments over all of the four year period 2009-2012  Two Scenarios: 1. State achieves its long run average yield of 39 bushel per acre but the national price is lower over the four year period 2.National Average Price is $6 but state yields are low (and remain low over the four year period)

24. Scenario 1: Average State Yields-Lower National Average Prices PRICE PER BUSHEL TOTAL ACRE PAYMENTS TOTAL CURRENT PROGRAM PAYMENTS $3$161.00$116.00 $4$165.45$60.64 $5$118.12$60.64 $6$74.23$60.64 $7$48.51$60.64

25. Scenario 2: Constant ($6/bu) Price-Lower Average Yields STATE AVERAGE YIELD (bu/acre) TOTAL ACRE PAYMENTS TOTAL CURRENT PROGRAM PAYMENTS 39$74.23$60.64 29$172.92$60.64 19$148.66$60.64 9$148.66$60.64

27.  Import Quotas: these will be continued  Marketing Allotments for both domestic beet and cane sugar production (re-established in the 2002 Farm Bill). These will be continued.  Non-recourse loans. The sugar beet loan rate is currently 22.9 cents per pound of sugar. The loan rate will be increased in each of the following years: 2009, 2010, and 2011.

28.  Import Quotas: these will be continued  Marketing Allotments for both domestic beet and cane sugar production (re-established in the 2002 Farm Bill). These will be continued.  Non-recourse loans. The sugar beet loan rate is currently 22.9 cents per pound of sugar. The loan rate will be increased in each of the following years: 2009, 2010, and 2011.

29. Year Sugar Beet Loan Rate (cents per lb) 200822.90 cents 200923.45 cents 201023.77 cents 201124.09 cents 201224.09 cents

31.  Crop Insurance programs will be continued. Subsidies will generally be maintained at the current levels. At the most common level of coverage (effectively a 35 percent yield deductible), the federal government pays 59 % of the estimated actuarially fair premium.  In 2009, the Administration Fee for Federal Crop Insurance Catastrophic Coverage will be increased from $100 per crop to $300 per crop (for up to a maximum of three crops).  In 2009, the NAP Administration fee will be increased to $250 per crop (for a maximum of three crops).

33.  A new standing disaster payment program (in the Senate Finance Bill) would require farmers to buy crop insurance or NAP for all crops and forage for which those programs are available.  The new standing disaster program is also known as the Supplemental Revenue Assistance Program (SURE)

34.  Critical considerations  Double trigger  Crop insurance and NAP must be purchased for all crops raised on farm  Farm is: (a) in a declared disaster (or contiguous) county or (b) adverse growing conditions reduced the farm’s total production by 50% or more

35.  Critical considerations  SURE payment  60% of farm’s SURE guarantee less farm’s estimated revenue  Farm’s SURE Guarantee  115% of per acre insurance coverage (essentially)  Farm’s Revenue (Revenue to Count)  Value of crop  Insurance indemnities (or prevented planting payments)  15% of direct payments  All CCP, ACRE and market loan payments

37.  Analysis  SURE is an incentive to buy at least 75% individual crop insurance (115% x 75% = 86%)  SURE most benefits areas with higher yield variability  SURE raises questions about crop rotation (encourages single-crop farms)  Will farmers adopt all-crop alternative year rotation?  Will farmers eliminate small acre crops?

38.  Eligible Producers will receive 75% of the estimated market value of livestock losses in excess of normal mortality rates for losses attributable to the disaster.  A livestock forage disaster program has been established where losses are determined through drought monitoring.  A honey disaster payment program has been established.

40.  Land Retirement Programs  Working Lands Programs

41.  Conservation Reserve Program: Nationwide, the maximum allowable CRP area will be reduced from 39.2 million acres to 32 million acres. The new constraint has to be in place in 2010.  Nationwide, after bird nesting season, livestock operators will be allowed to hay and graze CRP lands (an allowance permitted by the Secretary of Agriculture and which is not in the 2008 Farm Bill).  Wetlands Reserve Program: Renewed with some modifications, including provisions for easements.  Grassland Reserve Program: The 2008 Farm Bill continues this program (which funds conservation easement to maintain grassland) with the goal of increasing enrolment by about 1.2 million acres over the life of the Farm Bill.

42.  Conservation Stewardship Program (previously the Conservation Security Program): The Farm Bill renews and expands funding for the program, which provides incentives for farms and ranches to adopt conservation practices. Farms no longer have to have land in a watershed to be eligible.  Environmental Quality Incentives Program: The Farm Bill also renews and expands the EQIP program, which provides cost share funds for farm/ranch investments that improve environmental quality.

43.  Most important provisions in Farm Bill  ACRE  SURE  Environmental and Conservation Programs

44. Questions