1. Missouri’s Panel Approach to Evaluate Farm-level Risks and Returns Brent Carpenter, Research Associate College of Agriculture, Food, and Natural Resources University of Missouri—Columbia www.fapri.missouri.edu National Farm Management Conference June 12, 2007 Rochester, MN

2. Outline Representative farms The modeling framework The panel process Sample baseline results Sample policy scenarios Successful outreach efforts

3. Who We Are A consortium of researchers University of Missouri Iowa State University Texas A&M University National rep farms Texas Tech University Arizona State University University of Wisconsin Instituted by the U.S. Congress in 1984 International components

4. What We Do World trade issues U.S. commodity markets Environmental modeling Transportation modeling Farm-level risks and returns We report to Congress, industry, public Outreach component

5. Farm-level questions What is the present financial condition of farms? by type, by geography, by size, by... What does the future look like under alternative policies? Expected payments, revenues, costs, etc.

6. Size, structure, enterprises, output variability Long range price paths, price distributions, inflation factors Existing and proposed farm policy Rep Farm Projected financial statements and probabilities Modeling a representative farm

7. The rep farms 38 representative farms 200 active panel members Farm numbers by type 10 Feedgrain-soybean 3 Rice and cotton 9 Crop-beef 4 Pork-crop 5 Beef 5 Dairy 2 Broiler-beef Shaded areas are home counties of panel members

8. Model farms are built by like-producers to reflect their farm structure, yields, production practices, markets, resources, etc. Panel process Input data and simulation results are representative of the panel as a group.

9. Rep farms are systems Advantage Useful to quantify changes and keep pulse of farm economy Handles range of possible outcomes Disadvantage Used alone, not always sound for isolating profitable management practices Accounting Whole-farm, usually Cash-basis, usually After-tax

10. Receipts, sample crop-beef farm Mean of 500 iterations shown Includes receipts from all farm business sources: commodity markets, government program payments, insurance indemnities, and custom work, if any. Static enterprise sizes (baseline). No off-farm income.

11. Sample farm operating expenses

12. Selected costs of production projections From FAPRI econometrics, based on multiple sources

13. Sample farm modified cash flow statement

14. Barton County crop-beef farm CHARACTERISTICS 2385 acres operated 79% owned 19% share leased 2% cash leased 150 beef cows, raise steers to 700 lbs Crop 1800 acres, plant 2400 Dryland corn 360 acres Irrigated corn160 acres Grain sorghum180 acres Soybeans (1 st )500 acres Wheat600 acres Dry DC beans440 acres Irrigated DC beans160 acres Grass hay185 acres Pasture370 acres FINANCIALS (2007-11) Operator assets (market) $ 4.4 mil Return on oper. assets 10.1 % Term debt capacity (median) ~ 43 % Cash risk score (20%) Net cash farm income $ 325,000 Operating exp/receipts 62 % Gov payments/receipts 8.0 % 2007 net returns $ 143,000 2011 net returns $ 119,300

15. Costs and returns per acre Barton County 1800 acres + 150 beef cows Baseline, Jan 2007

16. Operator costs and returns per acre 10 feedgrain rep farms, averaged 2007-2011 Feedgrain-soybean farms Baseline, Jan 2007

17. Cash risk ratings for feedgrain group Baseline, Jan 2007

18. Operator costs and returns per cow Average of 5 cow-calf rep farms Cow-calf farms Baseline, Jan 2007

19. Operator costs and returns per cwt Average of 1250 and 1500 sow farrow-to-finish farms Multi-site farrow-t0 finish farms Baseline, Jan 2007

20. Operator costs and returns per cwt Osage County 200 sows + 125 beef cows + crop acres Diversified farrow-to-finish—family labor Baseline, Jan 2007

21. Operator costs and returns per house Average of two broiler-beef farms 4 and 6 house broiler farms—different integrators Baseline, Jan 2007

22. Dairy costs and returns per cwt. Baseline, Jan 2007

23. Cash risk trend, nearby 2 years Nearby, two-year outlook for successive baseline projections: 2005, 2006, and 2007, respectively. Baseline, Jan 2007

24. Dairy farms: term debt capacity, median risk

25. Debt vs. cash flow risk for sample farm Term debt capacity is 40 percent, mkt value, oper. assets Given the five year outlook, IF the farm has 20 percent term debt on Jan 1, 2007, THEN the probability of generating cash to meet all obligations is 83 percent.

26. Administration's farm bill proposal The administration’s proposal would make relatively small adjust- ments to direct payment rates and loan rates. The current counter cyclical program, would be triggered by revenue rather than price. Changes are not quite as simple as the table implies.

27. Northeast 2600 crop acres Plant 1250 corn, 1250 beans, 100 wheat Whole-farm market receipts Implications of three provisions of administration’s proposal

28. Northeast MO 2600 crop acres Plant 1250 corn, 1250 beans, 100 wheat Whole-farm direct payments Implications of three provisions of administration’s proposal

29. Northeast MO 2600 crop acres Plant 1250 corn, 1250 beans, 100 wheat Whole-farm marketing loan benefits Implications of three provisions of administration’s proposal

30. Northeast MO 2600 crop acres Plant 1250 corn, 1250 beans, 100 wheat Whole-farm countercyclical payments Implications of three provisions of administration’s proposal

31. Northeast MO 2600 crop acres Plant 1250 corn, 1250 beans, 100 wheat Whole-farm net cash farm income Implications of three provisions of administration’s proposal

32. Cotton farm 1600 acres 670 cotton + 610 beans + 270 rice + 50 milo (520 irrigated) Whole-farm net cash farm income Implications of three provisions of administration’s proposal

33. Rice farm 2000 acres 630 rice + 640 beans +630 corn + 100 wheat-beans Implications of three provisions of administration’s proposal

34. Extension Outreach Panel facilitators Direct to producer meetings Farm bill specific education Market outlook, risk management Over 1000 producers last year In service education and interactions with field faculty

35. On our website… Find the latest reports at: www.fapri.missouri.edu