Department of Economics Implications of the New 2008 Farm Bill North Central Iowa Crop & Land Stewardship Clinic Iowa Falls, Iowa January 2, 2009 Chad Hart Assistant Professor/Grain Markets Specialist

Department of Economics A Short Timeline for the Farm Bill May 2005Farm groups outlines proposals July 2005USDA begins nationwide forums Feb. 2006Congress begins farm bill hearings Jan. 2007USDA releases farm bill recommendations July 2007House passes its version of the farm bill Dec. 2007Senate passes its version May 2008House and Senate agree on farm bill June 2008House and Senate override veto of farm bill

Department of Economics Farm Bill Titles I. CommoditiesIX. Energy II. ConservationX. Hort. & Organic Ag. III. TradeXI. Livestock IV. NutritionXII. Crop Insurance V. CreditXIII. Commodity Futures VI. Rural DevelopmentXIV. Miscellaneous VII. ResearchXV. Trade & Taxes VIII. Forestry

Department of Economics Farm Bill Projected Spending Projected Spending $297 Billion

Department of Economics The 2008 Farm Bill  Continues many of the same programs we have currently  Direct payments  Price countercyclical payments (CCPs)  Marketing loans  CRP, EQIP, and other conservation programs  Gives producers a choice on programs  Average Crop Revenue Election (ACRE)  Sets up new permanent disaster program  Supplemental Revenue Assistance Payments Program (SURE)

Department of Economics Target Price Changes CropUnit Corn$/bu.2.63 Soybeans$/bu Barley$/bu Wheat$/bu Oats$/bu Cotton$/lb Sorghum$/bu

Department of Economics Direct Payment Rates CropUnit Corn$/bu.0.28 Soybeans$/bu.0.44 Barley$/bu.0.24 Wheat$/bu.0.52 Oats$/bu Cotton$/lb Sorghum$/bu.0.35

Department of Economics Loan Rate Changes CropUnit Corn$/bu.1.95 Soybeans$/bu.5.00 Barley$/bu Wheat$/bu Oats$/bu Cotton$/lb.0.52 Sorghum$/bu.1.95

Department of Economics Other Adjustments to Current Programs  Payment acres = 85% of base in 2008 and 2012  Payment acres = 83.3% of base in  Establishes pulse crops (dry peas, lentils, chickpeas) as program crops  Posted county price based on 30-day moving average

Department of Economics Average Crop Revenue Election (ACRE)  ACRE is a revenue-based counter-cyclical payment program  Based on state and farm-level yields per planted acre and national prices  Producers choose between the current price-based counter-cyclical payment (CCP) program and ACRE  There are still some details to be worked out about ACRE (stay tuned)

Department of Economics Farmer Choice  Starting in 2009, producers will be given the option of choosing ACRE or not  Can choose to start ACRE in 2009, 2010, or beyond  Once you’re in ACRE, you stay in ACRE until the next farm bill  If you sign up for ACRE, you must do so for all eligible crops  Deadline for sign-up, June 1 of each year  Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates

Department of Economics ACRE  Program has state and farm trigger levels, both must be met before payments are made  Expected state and farm yield based on 5 year Olympic average yields per planted acre  ACRE price guarantee is the 2 year average of the national season-average price

Department of Economics ACRE Set-up for Iowa Corn YearYield per Planted Acre (bu./acre) Olympic Average166.1 YearSeason-average Price ($/bu.) Average4.10 The 2008 yield and price are USDA’s December 2008 estimates. So the expected state yield would be bushels per acre and the ACRE price guarantee would be $4.10 per bushel.

Department of Economics ACRE Structure  ACRE revenue guarantee = 90% of ACRE price guarantee * Expected state yield  For our example, the ACRE revenue guarantee is 90% * bu./acre * $4.10/bu.  $612.91/acre  ACRE actual revenue = Max(Season- average price, Loan rate) * Actual state yield per planted acre

Department of Economics ACRE Structure  ACRE Farm revenue trigger = Expected farm yield * ACRE price guarantee + Producer-paid crop insurance premium  Let’s assume farm yields equal to state yields and use the average producer-paid crop insurance premium for 2008 (so far)  bu./acre * $4.10/bu. + $17.58/acre  $703.69/acre

Department of Economics ACRE Payment Triggers  ACRE actual farm revenue = Max(Season- average price, Loan rate) * Actual farm yield per planted acre  Given our example, ACRE payments are triggered when ACRE actual revenue is below $612.91/acre and ACRE actual farm revenue is below $703.69/acre

Department of Economics ACRE Payments  Payment rate = Min(ACRE revenue guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee)  Payments made on 83.3% of planted/base acres in , 85% in 2012  ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield

Department of Economics ACRE vs. CCP ACRE pays out No ACRE payments CCP pays out No CCP payments

Department of Economics You Don’t Have to Decide Today  ACRE signup will not be for a while  Once the ACRE rules are finalized, there will be a number of decision tools available to help producers  Preliminary ACRE information and tools are available at:

Department of Economics Supplemental Revenue Assistance Payments Program (SURE)  Provides payments to producers in disaster counties for crop losses  Based on crop insurance program, non- insured crop assistance program, and disaster declarations  Whole-farm revenue protection, not commodity-specific

Department of Economics SURE Triggers  Declared “disaster county” by Secretary of Agriculture or contiguous to one  Farm with losses exceeding 50% of normal production in a calendar year

Department of Economics SURE Settings  Participation and revenue guarantee tied to crop insurance  Farm revenue, including some government payments, used to determine payment  Payments set as 60% of the difference between guarantee and actual revenue  Limited to $100,000 per producer  Payments not known or paid until the end of the marketing year

Department of Economics SURE Guarantee  Farm guarantee is the sum of  115%*Crop insurance price election*Crop insurance coverage level*Planted acres* Max(APH or CCP yield), for insurable commodities  120%*NCAP price election*Planted acres* Max(NCAP or CCP yield), for non-insurable commodities  For an individual crop, the guarantee can not be greater than 90% of the crop’s expected revenue

Department of Economics SURE Expected Farm Revenues  Expected farm revenue is the sum of  Max(APH or CCP yield)*Planted acres*100% of the crop insurance price for insurable commodities  100% of NCAP yield*100% of NCAP price*Planted acres for non-insurable commodities

Department of Economics SURE Actual Farm Revenues  Actual farm revenue is the sum of  Harvested acres*Farm yield*National season- average price for all commodities  15% of direct payments  All CCP or ACRE payments  All marketing loan benefits  All crop insurance or NCAP payments  Any other disaster assistance payments

Department of Economics SURE Payments  Payments set as 60% of the difference between farm guarantee and actual farm revenue  Payments limited to $100,000 per producer  Payments not known until end of marketing year

Department of Economics SURE Calculator  USDA has created a calculator for SURE    Calculator limited to yield based crops  Does not address value loss crop, prevented planting, double cropping, and several other scenarios

Department of Economics Payment Limitations  Direct payments: $40,000 (w/o ACRE) $32,000 (w/ ACRE)  Counter-cyclical payments: $65,000  ACRE: $73,000 ($65,000 + $8,000)  Marketing loans: No limits  Direct attribution of payments  Elimination of the 3-entity rule

Department of Economics Crop Insurance Changes  Reduced premium subsidy rates for area crop insurance plans (GRP, GRIP)  Increased premium subsidy rates for enterprise and whole-farm units  Increased fees for catastrophic (CAT) coverage to $300 per crop per county  Moved premium billing date to August 15 th, starting in 2012

Department of Economics Conservation  CRP limited to 32 million acres (starting 2010)  WRP extended (3 million acres)  EQIP funding increased  CSP renamed and strengthened  Targeted enrollment: million acres per year

Department of Economics Energy in the Farm Bill  Grants for advanced biofuel biorefineries, up to 30% of the cost of the project  Loans for the same, up to $250 million or 80% of the cost per project  Bioenergy Program for Advanced Biofuels  Biomass Crop Assistance Program  Cellulosic biofuel producer tax credit

Department of Economics Thank you for your time! Any questions?