APCA A Market Directed Inventory System (MDIS) National Farmers Union February 29, 2012 Daryll E. Ray and Harwood D. Schaffer Agricultural Policy Analysis Center University of Tennessee Institute of Agriculture

APCA Policy Description Objectives – Bulk of revenue from market receipts – Reduce government payments while maintaining farm income – Reduce price volatility

APCA Policy Description MDIS Specifications for Study Period – Initial corn loan rate set at midpoint between variable and full cost of production – Indexed with a prices paid by farmers index – Other crop loan rates set to historic ratios with corn – Release price is set at 160% of loan rate

APCA Policy Description MDIS Specifications for Study Period – MDIS maximums Corn – 3 billion bushels Wheat – 800 million bushels Soybeans – 400 million bushels – Farmer storage payment rate 40¢/bu./yr – Set-aside available if needed – Eliminate Direct Payments, LDPs, & CCPs

APCA 8 Crops - Government Payments Historic Baseline MDIS $ Billion

APCA 8 Crops – Government Payments Average Per Year Over Each Period Historic Baseline MDIS $ Billion $14.8 $4.8 $6.8 $3.6 $11.7 $4.3

APCA Corn Prices Historic Baseline Release Price Loan Rate

APCA Corn Prices Historic Baseline MDIS Release Price Loan Rate

APCA Corn Prices Average Per Year Over Each Period Historic Baseline MDIS $2.05 $2.68 $4.02 $3.71 $2.81 $3.07

APCA Corn Exports - Quantity Historic Baseline MDIS Million Bu.

APCA Corn Exports - Value Historic Baseline MDIS $ Billion

APCA Corn Value of Exports Average Per Year Over Each Period Historic Baseline MDIS $ Billion $3.9 $4.8 $8.3 $7.7 $5.6 $5.9

APCA MDIS Stocks Corn Wheat Million Bu. Soybeans

APCA Corn – Value of Production plus Government Payments Average Per Year Over Each Period Historic Baseline MDIS $ Billion $26.4 $28.2 $51.5 $46.5 $36.1 $35.2

APCA Realized Net Farm Income Average Per Year Over Each Period Historic Baseline MDIS $ Billion $49.8 $50.8 $55.8 $51.5 $52.1 $51.1

APCA Summary of Findings Over the Study Period, , with MDIS in Place: – Government payments 60% lower – Increased crop prices and increased reliance on market receipts – Value of exports $4.9 billion higher – Lower price volatility benefitting: Consumers Crop farmers Livestock producers and industrial users

APCA Policy in an Uncertain Future Two sets of analyses: –A “future” represented by the 2012 USDA baseline (Baseline) –A “future” roughly patterned after the historical experience of and the supply variation we experienced

APCA Corn Prices

APCA 8 Crops – Value of Production Million $

APCA 8 Crops – Value of Exports Million $

APCA 8 Crops – Government Payments Million $

APCA Value of Production + Government Payments - Cash Expenses: 8 Crops Million $

APCA Realized Net Farm Income Million $

APCA Policy in an Uncertain Future Two sets of analyses: –A “future” represented by the 2012 USDA baseline –A “future” roughly patterned after the historical experience of and the supply variation we experienced

APCA Policy in an Uncertain Future Four Shocked Scenarios: – A “future” roughly patterned after the historical experience of and the supply variation we experienced Shocked Baseline: Shocked yields, current farm programs

APCA Corn Yield Shock Baseline Yield Shock Bu/Ac.

APCA Corn Prices Shocked Baseline Below $3.00 Above $7.00

APCA 8 Crops - Government Payments Million $

APCA Value of Production + Government Payments - Cash Expenses: 8 Crops Million $ Shocked Baseline

APCA Realized Net Farm Income Million $

APCA Policy in an Uncertain Future Shocked Scenarios: – A “future” roughly patterned after the historical experience of and the supply variation we experienced Shocked Baseline: Shocked yields, current farm programs Shocked No DP: Shocked yields, no direct payments

APCA 8 Crops - Government Payments Million $

APCA Value of Production + Government Payments - Cash Expenses: 8 Crops Million $

APCA Realized Net Farm Income Million $

APCA Policy in an Uncertain Future Shocked Scenarios: – A “future” roughly patterned after the historical experience of and the supply variation we experienced Shocked Baseline: Shocked yields, current farm programs Shocked No DP: Shocked yields, loan rates unchanged, no direct payments Shocked New LR No DP: Shocked yields, higher loan rates, no direct payments

APCA 8 Crops - Government Payments Million $

APCA Value of Production + Government Payments - Cash Expenses: 8 Crops Million $

APCA Realized Net Farm Income Million $

APCA Policy in an Uncertain Future Shocked Scenarios: – A “future” roughly patterned after the historical experience of and the supply variation we experienced Shocked Baseline: Shocked yields, current farm programs Shocked No DP: Shocked yields, loan rates unchanged, no direct payments Shocked New LR No DP: Shocked yields, higher loan rates, no direct payments MDIS (Market Driven Inventory System): Shocked yields, higher loan rates, no DP, reserve stocks

APCA Policy Description MDIS Specifications for Study Period –MDIS corn loan rate set at $3.50 –Other crop loan rates set to historic ratios with corn – Minimize distortion –Release price is set at 160% of loan rate

APCA Policy Description MDIS Specifications for Study Period –MDIS maximums Corn – 3 billion bushels Wheat – 800 million bushels Soybeans – 400 million bushels –Farmer storage payment rate 40¢/bu./yr –Eliminate Direct Payments, LDPs, & CCPs except for rice and cotton

APCA Corn Price Loan Rate and Release Price

APCA Corn Price Loan Rate and Release Price with Baseline

APCA Corn Price Loan Rate and Release Price with Scenarios

APCA

APCA Corn Prices Average Per Year Over Each Period Shocked Baseline MDIS $3.43 $4.07 $5.75 $5.29 $4.59 $4.68

APCA Corn Prices Average Per Year Over Each Period Shocked New LR No DP MDIS $3.54 $4.07 $5.89 $5.29 $4.71 $4.68

APCA MDIS Stocks Corn Wheat Million Bu. Soybeans

APCA 8 Crops – Value of Exports Million $

APCA 8 Crops - Value of Exports Average Per Year Over Each Period Shocked Baseline MDIS $ Billion $29.9 $35.4 $46.5 $47.0 $38.2 $41.2

APCA 8 Crops - Value of Exports Average Per Year Over Each Period Shocked New LR No DP MDIS $ Billion $30.1 $35.4 $47.4 $47.0 $38.8 $41.2

APCA 8 Crops - Government Payments Million $

APCA 8 Crops – Government Payments Average Per Year Over Each Period Shocked MDIS $ Billion $4.9 $3.0 $2.3 $4.9 $2.6 $4.9

APCA 8 Crops – Government Payments Average Per Year Over Each Period Shocked New LR No DP MDIS $ Billion $14.8 $3.0 $0.2 $2.3 $6.5 $2.6

APCA Value of Production – 8 Crops Million $

APCA 8 Crops – Value of Production Average Per Year Over Each Period Shocked MDIS $ Billion $96.5 $116.9 $151.4 $148.1 $124.0 $132.5

APCA 8 Crops – Value of Production Average Per Year Over Each Period Baseline New LR No DP MDIS $ Billion $98.0 $116.9 $155.0 $148.1 $126.4 $132.5

APCA Value of Production + Government Payments - Cash Expenses: 8 Crops Million $

APCA Value of Production + Government Payments - Cash Expenses: 8 Crops Average Per Year Over Each Period Shocked MDIS $ Billion $16.0 $33.8 $66.7 $59.5 $41.4 $46.6

APCA Value of Production + Government Payments - Cash Expenses: 8 Crops Average Per Year Over Each Period Shocked New LR No DP MDIS $ Billion $26.4 $33.8 $64.2 $59.5 $45.3 $46.6

APCA Realized Net Farm Income Million $

APCA Realized Net Farm Income Average Per Year Over Each Period Shocked MDIS $ Billion $59.2 $70.6 $92.4 $88.5 $75.8 $79.5

APCA Realized Net Farm Income Average Per Year Over Each Period Shocked New LR No DP MDIS $ Billion $67.9 $70.6 $90.6 $88.5 $79.2 $79.6

Thank You