Extension and Outreach/Department of Economics Outlook, Farm Bill, and Crop Insurance ISUEO Farm Management In-Service Ames, Iowa May 8, 2012 Chad Hart Assistant Professor/Grain Markets Specialist

Extension and Outreach/Department of Economics U.S. Corn Supply and Use Area Planted(mil. acres) Yield(bu./acre) Production(mil. bu.)12,09213,09212,44712,35814,558 Beg. Stocks(mil. bu.)1,6241,6731,7081, Imports(mil. bu.) Total Supply(mil. bu.)13,72914,77414,18213,50615,374 Feed & Residual(mil. bu.)5,1825,1254,7934,6005,200 Ethanol(mil. bu.)3,7094,5915,0215,0004,950 Food, Seed, & Other(mil. bu.)1,3161,3701,4071,4051,420 Exports(mil. bu.)1,8491,9801,8351,7001,900 Total Use(mil. bu.)12,05613,06613,05512,70513,470 Ending Stocks(mil. bu.)1,6731,7081, ,616 Season-Average Price($/bu.) Source: USDA-WAOB, 2012 Unofficial Projections ?

Extension and Outreach/Department of Economics U.S. Soybean Supply and Use Area Planted(mil. acres) Yield(bu./acre) Production(mil. bu.)2,9673,3593,3293,0563,202 Beg. Stocks(mil. bu.) Imports(mil. bu.) Total Supply(mil. bu.)3,1853,5123,4953,2863,467 Crush(mil. bu.)1,6621,7521,6481,6301,660 Seed & Residual(mil. bu.) Exports(mil. bu.)1,2791,4991,5011,2901,550 Total Use(mil. bu.)3,0473,3613,2803,0363,335 Ending Stocks(mil. bu.) Season-Average Price($/bu.) Source: USDA-WAOB, 2012 Unofficial Projections ?

Extension and Outreach/Department of Economics Budget Projections by Title Title Budget Change ($ million) Title I – Commodity-17,639 Title II – Conservation -6,374 Title III – Trade 0 Title IV – Nutrition -4,024 Title V – Credit 0 Title VI – Rural Development 0 Title VII – Research 645 Title VIII – Forestry 9 Title IX – Energy 0 Title X – Horticulture 359 Title XI – Crop Insurance 2,748 Title XII – Miscellaneous -466 Total-24,747

Extension and Outreach/Department of Economics Budget Projections by Crop Crop Budget Change ($ million) Corn-5,752 Soybean 1,459 Wheat-6,409 Cotton-6,077 Rice-2,842 Sorghum -505 Barley -615 Oats -11 Peanuts -314 Dairy -59

Extension and Outreach/Department of Economics Commodity Title Changes Budget Change ($ million) End Direct Payments-44,622 End Countercyclical Payments -1,008 End ACRE -4,615 Adding Popcorn 91 Ag. Risk Coverage 29,240 Marketing Loans 35 Sugar Program 0 Dairy Program -59 Disaster Assistance 3,297 AGI Limits -95 Implementation 100 Total-17,639

Extension and Outreach/Department of Economics 2012 Senate Proposal  Eliminates direct payments, countercyclical payments, and the ACRE program  Keeps marketing loan program  Creates the Ag. Risk Coverage program

Extension and Outreach/Department of Economics ARC instead of ACRE  Revenue-based support program  Farmer chooses county or farm-based guarantee  Choice determines the % of land covered by the program

Extension and Outreach/Department of Economics ARC Guarantees  Based on 5-year Olympic averages of price and yield  Exception: farm-based price is 10-year average  Price is national season-average price  Yield is farm yield for farm-based coverage and county yield for county-based coverage  Yield is per planted (and prevented planted) acre  Guarantee = 89% * Ave. Price * Ave. Yield

Extension and Outreach/Department of Economics ARC Set-up for Corn in 2013 Yield per Planted Acre YearFarm (bu./acre) County (bu./acre) Season-Average Price ($/bu.) Olympic Average year average 3.77

Extension and Outreach/Department of Economics ARC Guarantees  Benchmark Revenue = $779.00/acre = 164 bu/acre * $4.75/bu. for county $618.28/acre = 164 bu/acre * $3.77/bu. for farm  In this case, the guarantee equals 89% * $779.00/acre = $693.31/acre for county 89% * $618.28/acre = $550.27/acre for farm  Payments are triggered when actual revenues fall below these levels

Extension and Outreach/Department of Economics ARC Actual Revenues  Price is set at the higher of the crop loan rate or the mid-season price  Loan rate for corn is $1.95/bu.  Mid-season price is the average price over the 1 st 5 months of the marketing year

Extension and Outreach/Department of Economics ARC Actual Revenues  Yield is the actual yield per planted acre  Farm-based option uses actual farm yield  County-based option uses actual county yield  Actual Revenue = Price * Yield

Extension and Outreach/Department of Economics ARC Payment Rate  Payment Rate = Minimum of 10% of Benchmark Revenue or ARC Actual Revenue – ARC Guarantee  The maximum payment rate is 10% of Benchmark Revenue  In my example, that’s $77.90/acre for the county- lever and $61.83/acre for the farm-level

Extension and Outreach/Department of Economics ARC Acreage  Program is based on planted and prevented planted acres, but doesn’t pay on all of them  Acreage limit = average of plantings (and prevented plantings)  Treats planted and prevented planted acres differently

Extension and Outreach/Department of Economics ARC Acreage  For farm-based option, you get paid on 65% of your planted acres and 45% of your prevented planting acres  For county-based option, you get paid on 80% of your planted acres and 45% of your prevented planting acres

Extension and Outreach/Department of Economics ARC Payout Graph ARC pays out No ARC payments

Extension and Outreach/Department of Economics Factors to Consider  Farm-based guarantee could be higher or lower than county-based guarantee  Farm-based option is generally more likely to pay out, but you get payments on 15% less acres  County-based option might not trigger when farm has a loss

Extension and Outreach/Department of Economics Crop Insurance Title Changes Budget Change ($ million) Supplemental Coverage Option 682 CAT Rerating -437 Enterprise Units 506 APH Adjustment 855 Stacked IP for Cotton 3,224 Peanut Rev. Insurance 239 Implementation 85 Index-Based Weather Ins. 50 Beginning Farmer Provisions 192 Ag. Mng. Assistance 6 Crop Prod. on Native Sod -167 Participation Effects from ARC-2,487 Total 2,748

Extension and Outreach/Department of Economics Crop Insurance  Supplemental Coverage Option  Can purchase area-based policy to cover deductible part of individual-based policy  Payments triggered when area suffers 10% loss  If you participate in ARC, you face a deductible of 21% for this option  What is the deductible if you do not participate in ARC?  70% premium subsidy for actuarially fair premium

Extension and Outreach/Department of Economics Crop Insurance  Enterprise discounts are now permanent  Separate enterprise units for irrigated and nonirrigated land  Change t-yield percentage from 60% to 70%  Any renegotiation of the Standard Reinsurance Agreement shall be budget neutral

Extension and Outreach/Department of Economics Crop Insurance  Allows private insurance company pilot of index-based weather insurance  Allows premium subsidy of 60% or less  Waives CAT fee, adds 10% to premium subsidy rates, and sets yield bound at 80% of the t-yield for beginning farmers

Extension and Outreach/Department of Economics Conservation Title Changes Budget Change ($ million) CRP-3,795 CSP-1,987 EQIP -964 Cons. Easements 809 Reg. Cons. Incentives Prog. -86 Other Cons. Programs 190 Funding 100 Repeal of WHIP -641 Total-6,374

Extension and Outreach/Department of Economics Not the Last Word on the 2012 Farm Bill  Senate proposal is just the start of the process  There will likely be several changes/modifications  ARC may or may not be in the final farm bill  But now we know the starting point for negotiations