publication archive: policy
June 7, 2013
Market Distortion and Farm Program Design: A Case Examination of the Proposed Farm Price Support ProgramsThis post examines the potential for market distortions caused by the price support programs currently proposed in the House and Senate 2013 Farm Bills. It is common for discussion of market distortion to focus on the level of price supports, but the degree of distortion reflects the interaction of all of a program's parameters. One of the hot topics in business today is the role of product design. In many respects, this post is a discussion of policy design and the potential consequences of design decisions.
June 6, 2013
Expected Price Support Payments for Corn and SoybeansThe current farm bill proposals being debated in the Senate and House continue to include price supports in the commodity title while repealing the current system of direct and countercyclical (DCP) payments. More detailed discussions of the modified price support programs - AMP in the Senate, and PLC in the House - were provided in recent posts. Today, attention is turned towards comparing the expected payments each program might generate for corn and soybean producers.
May 31, 2013
Comparing Current and 1970 Farm Prosperity: Production ResponseThis post is the fifth in a series that contrasts and compares the farm prosperity of the 1970s with the current period of farm prosperity. It examines the response of corn, cotton, soybean, and wheat production during the two periods of prosperity, both in the U.S. and the rest of the world. These 4 crops are examined because they have the largest quantity and value of exports among U.S. crops.
May 23, 2013
Comparison of Approaches to Price Supports for the 2013 Farm BillLast week the Senate and House Ag Committees successfully passed their versions of the 2013 Farm Bill. As discussed in a post from last week, price support programs now exist in both versions, making it highly likely that price supports will continue to be offered to the major program crops over the next Farm Bill period.
May 16, 2013
A Farm Bill Update: More Changes to Commodity ProgramsAfter creating a one-year extension to the 2008 Farm Bill in the midst of larger budget issues at the end of last year, Congress has resumed the Farm Bill process. Both the Senate and House Ag Committees have released 2013 Farm Bill markups. Both the Senate and House drafts are similar to the versions passed by the full Senate and House Ag Committee in 2012 in that the majority of existing commodity programs (direct, countercyclical, ACRE, and SURE programs) are repealed to achieve spending reductions. However, there have been some slight changes to the programs created to replace those being repealed, particularly in the new version from the Senate. Today's post provides a summary of some of those commodity program changes. Discussion of continued changes in other titles, such as Crop Insurance, and the budget implications will be saved for future posts.
May 10, 2013
Comparing Current and 1970 Farm Prosperity: Cash Farm ExpensesThis post is the 4th in a series that contrasts and compares the farm prosperity of the 1970s with the current period of farm prosperity. This post examines U.S. farm expenses during the two periods.
May 9, 2013
Payments by U.S. Farm Safety Net Program: Differences by CropAn important aspect of the on-going debate over the new farm bill is the proposed elimination of direct payments. This proposal differentially impacts the program crops, prompting a debate among crops and geographical regions over the distribution of payments by farm safety net programs. We believe this issue is the most important in the farm bill debate. We therefore examine it in more detail. This post specifically compares the distribution of payments by the direct payment, crop insurance, and price risk programs. The comparison begins with the 2003 crop year because the counter-cyclical program, an important price risk program, was initially enacted in the 2002 Farm Bill.
May 7, 2013
Questions That Will be the Focus of the Upcoming Farm Bill DebateFarm Bill markup likely will begin soon in both the Senate and House Agricultural committees. Much of the focus for traditional program crops will be around three programs: a revenue program, a target price program, and a supplemental crop insurance program. While the exact nature of the programs will depend on negotiations, what is almost certain is that the programs' rationale will be risk management. Given a risk management focus, Farm Bill negotiations will need to debate and somehow resolve the following seven questions.
May 2, 2013
Brazilian Ethanol Imports - Implications for U.S. Ethanol and Corn DemandThe current domestic ethanol market is dominated by the ongoing collision between the RFS for renewable biofuels and the E10 blend wall. Given the slow pace of market penetration of E15 and E85, the RFS likely exceeds the blend wall for ethanol in all blends in 2013. The difference between the magnitude of the RFS for renewable biofuels in 2013 (13.8 billion gallons) and the effective blend wall (estimated at 12.9 billion gallons) will be addressed with the use of blending credits accumulated from previous discretionary ethanol blending, some increase in higher blends, or possibly by discretionary blending of biomass-based biodiesel if those blending margins become positive.
April 30, 2013
Farm Bill Negotiations: Selection between Three ProgramsAfter last year's failed attempt, Congress will again try to pass a Farm Bill this year. Mark up in both the Senate and House Agricultural Committees likely will occur in the near future. Given bills passed last year in the full Senate and by the House Agricultural Committee, along with proposals put forward this year by farm groups, it is possible to gain a feel for the types of programs likely to be included in the Farm Bill. This year, negotiations likely will be around three programs: a revenue program, a target price program, and a supplemental insurance program. A passed Farm Bill likely will include two, if not all three, of these programs, giving farmers choices among the programs. The exact nature of each program will be determined by negotiations.
April 26, 2013
U.S. Crop Safety Net Policy: Overarching Considerations and the Current Farm Bill DebateCongressional markup of a new farm bill is currently expected to begin during May. This post examines some of the considerations that will underpin the debate and thus frame the details of the crop safety net.
April 24, 2013
Is Speculation Driving Up the Price of RINs?The dramatic run-up in ethanol (D6) RINs prices has been discussed in several of our recent posts here at farmdoc daily. It was argued that the underlying reason for the increased value of D6 RINs lies in the impending collision of the blend wall for E10 and the rising renewable (ethanol) mandate under the U.S. Renewable Fuel Standard (RFS). This situation results in the prospect for a sharp draw down in D6 RIN stocks in 2013 and 2014 as physical blending of ethanol, due to the blend wall, falls further and further behind the mandate levels. Not everyone agrees with this assessment. Most prominently, Senator Grassley from Iowa attributed the run-up to the actions of speculators. In a March 27th interview he said he had, "just one word - speculation," when reporters asked about the price run-up. He also stated, "That's quite a rise (in prices). It doesn't seem to me that's the marketplace," and suggested that U.S. Commodity Futures Trading Commission (CFTC) should investigate.
April 18, 2013
Comparing Current and 1970 Farm Prosperity: Farm DebtThis post is the third in a series that contrasts and compares the farm prosperity of the 1970s with the current period of farm prosperity. This post examines U.S. farm debt during the two periods.
April 12, 2013
An Update on the 2012 RIN Carryover ControversyThe Renewable Identification Number (RIN) market has been a hot topic over the past few months as prices for Renewable Ethanol (D6) RINs soared from $0.05 to over $1.00 per gallon in early March. As noted in a recent post from Scott Irwin and Darrel Good, the rapid price increase can be linked to the impending collision of the Renewable Fuel Standard (RFS) mandates and the ethanol blend wall which, without rapid expansion of the E15 or E85 markets, will likely require the use of accumulated RIN stocks for mandate compliance in 2013 and 2014.
April 10, 2013
Freeze It - A Proposal for Implementing RFS2 through 2015We propose to freeze RFS2 mandates in 2014 and 2015 at 2013 levels argue this represents a pragmatic way forward. It is realistic in that it would not force large scale adoption of E15, E85, or biodiesel. This is particularly important since it is by no means clear whether the infrastructure investments necessary for widespread E15 or E85 adoption could actually be made in this time frame. There is also uncertainty whether sufficient biodiesel production capacity would be available. However, the proposal does provides incentive for modest growth in E15 and/or E85 penetration by keeping the mandate for renewable fuels above the current E10 blend wall. Obligated parties in the motor fuel supply chain could more easily meet their blending obligations with a combination of physical blending and use of RINs stocks. Finally, implementation of the proposal would also likely reduce the price of D6 ethanol RINs and eliminate the differential impact of those high prices on obligated parties. The key for the success of the proposal is that regulators, legislators, and industry participants use the next two years to develop a mutually agreeable biofuels policy beyond 2015.
April 5, 2013
Comparing Current and 1970 Farm Prosperity: Cash Income and Real EstateThis post is the second in a series that will contrast and compare the farm prosperity of the 1970s with the current period of farm prosperity. This post examines U.S. net cash farm income and U.S. farm real estate values during the two periods.
April 3, 2013
Ethanol Blending Margins, RFS2 Compliance, and the Price of GasolineOur post on March 27 discussed the potential implications of current high prices of D6 ethanol Renewable Identification Numbers (RINs) on the cost of compliance with the 2007 Renewable Fuels Standards (RFS2) and the price of gasoline. That post focused on the complexities of the petroleum refining and blending supply chain and how RINs prices affect various participants in that supply chain. We concluded that the buying and selling of RINs within that supply chain results in something close to a zero-sum game in terms of profitability for the industry. The result is that high RINs prices at the present time likely have a minimal impact on RFS2 compliance and the cost of motor fuel at the retail level. The focus on RINs prices alone, however, diverts attention from the larger issue impacting the on-going cost of complying with RFS2 and the price of gasoline.
March 22, 2013
Comparing Current and 1970 Farm Prosperity: Crop PricesIt is common to hear references to the farm prosperity of the 1970s during the current period of farm prosperity. Therefore, this post is the first of a series that will examine various aspects of these two periods of U.S. farm prosperity. The series starts with U.S. crop prices since both periods are clearly associated with large increases in U.S. crop prices.
March 8, 2013
Exploding Ethanol RINs Prices: What's the Story?The objective of this post is to provide a brief explanation of the underlying cause of the recent very sharp increase in the price of ethanol (D6) RIN credits and to identify the factors that might influence future price direction. As described in an earlier post by Nick Paulson, "RINs are the basis of the accounting system created by the Environmental Protection Agency (EPA) for use in enforcing the fuel mandates outlined under the RFS2."
March 6, 2013
Persistence of Low and High Prices for U.S. Row Crops: Implications for Managing Risk and Farm PolicyThis article examines the occurrence of multiple years of low prices and multiple years of high prices over the period from 1974 through 2006 for the farm program crops of barley, corn, rice, sorghum, soybeans, upland cotton, and wheat. Understanding the occurrence of persistent low prices and persistent high prices is important to managing risk as well as designing policy.
February 22, 2013
2013 Farm Program Choice: An Initial PerspectiveCongress extended the 2008 Farm Bill to the 2013 crop. Thus, farms will have the decision to enroll in either the Direct and Counter-Cyclical Program (DCP) or Average Crop Revenue Election (ACRE) program. Enrollment status in the 2012 farm program does not matter. Any Farm Service Agency farm serial number, hereafter simply referred to as a farm, can enroll or not enroll in the 2013 ACRE program. This post discusses this decision. It is not an easy decision. It involves consideration of all 3 farm safety net programs: the traditional DCP program, the ACRE election option, and crop insurance. As in prior years, ACRE appears to offer more risk management assistance than DCP, especially for crops associated with the midwest and plains. However, unlike prior years, ACRE also appears, in general, to offer higher price risk assistance relative to individual crop insurance. Thus, as of late February 2013, the context in which the 2013 ACRE decision will be made is likely to differ from that of prior years.
February 13, 2013
The Ethanol Blend Wall, Biodiesel Production Capacity, and the RFS...Something Has to GiveWe have had a number of posts in in the last year addressing issues associated with U.S. biofuels policy. In particular, we noted that the new era of higher crop prices that began in late 2006 could be extended well into the future as a result of the Renewable Fuels Standard (RFS) for advanced biofuels which in all likelihood could only be met with a rapid expansion in biodiesel production. That analysis is revisited here based on additional information, including the mandated RFS volumes of biofuels for 2013 recently released by the U.S. Environmental Protection Agency (EPA). Our focus is on the increasing difficulty of meeting the RFS for both renewable biofuel (domestically produced ethanol) and advanced biofuels in the next 12 to 18 months. This issue is quickly coming to the forefront as the total mandate for biofuels continues to increase sharply--from 16.55 billion gallons this year to 20.5 billion gallons in 2015. Most importantly, the mandates could exceed the capacity to produce and/or blend biofuels by a substantial amount as soon as mid-2014.
February 8, 2013
Distribution of Crop Insurance Net Farm Payments by Crop and StateThis post examines the distribution of net insurance payments by crop and by state. It briefly discusses two factors that help determine the distribution and ends with a discussion of policy issues, notably a potential alternative subsidy method that would change the distribution of payments.
February 6, 2013
List of Alternatives Being Discussed to Reduce Farm Premium Subsidies in Crop InsuranceCost of crop insurance programs may be an issue this year, either via the farm bill or other legislation. Regardless, discussion of its cost is increasing. Moreover, it seems likely that the cost of crop insurance will become more prominent in future farm safety net discussions. The reason is simple: it is the largest cost program in the farm safety net. Moreover, crop insurance is no longer a small spending program. U.S. policy deliberations differ for large and small spending programs. Discussions of small spending programs focus on the program's value to beneficiaries. In contrast, discussions of large spending programs focus on whether the program is fair and appropriate for both beneficiaries and the U.S. public.
January 31, 2013
Expanding the Ethanol Blend Wall - a Role for E85?We began a discussion of the potential domestic blend wall for ethanol in a post in May of last year. The issue remains important for the biofuels industry, regulators, and policy makers. Domestic ethanol consumption is almost entirely in the form of low level blends with gasoline capped at 10 percent (E10), although small amounts have been consumed in "flex fuel" vehicles as an 85 percent blend (E85) and very small quantities are being consumed as a 15 percent blend (E15). With blending dominated by E10, the blend wall is reached when the ethanol inclusion rate reaches 10 percent of domestic motor gasoline consumption. The blend wall can be problematic since the federal Renewable Fuels Standards (RFS) require increasing quantities of renewable (ethanol) biofuels consumption for the next three years. Those requirements exceed the expected E10 blend wall.
January 11, 2013
2013 Farm Bill UpdateThe farm bill debate remains unresolved at present. Congress chose not to pass a new farm bill but to extend most of the 2008 Farm Bill through September 30, 2013 as part of the agreement to avoid the so-called "fiscal cliff." This farmdoc post briefly discusses the extension, changes in the farm bill environment, and potential future policy paths. It ends with summary observations.
January 4, 2013
IFES 2012: Overview and Impacts of Proposed Changes in the 2012 Farm BillListen to MP3 podcast
The main issue shaping the political debate around the 2012 Farm Bill is the desire to cut spending for deficit reduction. While farm programs do not represent the biggest piece of the Farm Bill pie, they are the main targets for program modifications and reductions in overall support as they become more difficult to justify with farm incomes reaching record levels.
December 28, 2012
IFES 2012: The Impact of Biofuels Mandates on Grain and OilseedListen to MP3 podcast
Minimum volumes of biofuel usage were first mandated for the U.S. in the 2005 Energy Policy Act and then revised in the Energy Independence and Security Act of 2007. The current legislation sets annual minimum volumes through 2022 in four categories of biofuels: cellulosic, biomass-based diesel, undifferentiated advanced, and renewable. There is a hierarchy among these different categories based on their life-cycle contribution to reducing "green house" gas (GHG) emissions. Most people are surprised to learn that there is not an explicit mandate for corn-based ethanol. Instead, corn-based ethanol has been the cheapest alternative to date for fulfilling the renewable component of the mandates.
December 14, 2012
RIN Stock Update: Implications of the 2012 DroughtToday's post provides an update on U.S. ethanol production and imports through August, and projections for 2012 ending Renewable Identification Number (RIN) stocks. Prior analyses of the available stock of RINs accumulated over the past three years through the RFS2's banking provision are available on farmdoc daily. These previous estimates indicated an ending stock level for 2011 of approximately 2.64 billion gallon RINs which could be used for mandate compliance in 2012 as an alternative to physical blending, providing up to 960 million bushels of flexibility in revealed demand for corn-for-ethanol if ethanol blending margins declined. Ethanol production and exports through the first quarter of 2012, and the expectation for a slowing in ethanol production due to the drought's impact on corn prices, suggested the likely use of a portion of available RIN stocks for mandate compliance in 2012 and a lower carry in to 2013.
December 6, 2012
2012 Farm Bill UpdateThe 2012 Farm Bill has become entwined with the debate over federal budget priorities at a time of large fiscal deficits, a debate commonly called the fiscal cliff. The 2012 farm bill process most closely resembles the 1991 farm bill process, which also became entwined in a debate over budget priorities and deficits. This article briefly examines the current status of the 2012 Farm Bill process and offers a peek at future farm safety net issues.
December 5, 2012
U.S. Fiscal Cliff and U.S. AgricultureThe U.S. fiscal cliff refers to the combination of 2 events that will occur in late 2012 and early 2013: (1) implementation of federal budget cuts resulting from the compromise to extend the U.S. federal debt ceiling and (2) expiration of many of the tax cuts enacted since 2000. The name, "fiscal cliff," stems from the widely-held concern that these 2 actions may cause an economic recession. However, the fiscal cliff is actually a symptom, not the problem.
November 15, 2012
2012 Drought, the Harvest Price Option, and Forward ContractingDroughts always cause farm policy issues because of the stress they cause. A policy issue that has emerged during the 2012 drought concerns whether or not crop insurance should have a harvest price option (HPO). HPO permits the insurance guarantee to be calculated using the insurance price determined at harvest when it is higher than the insurance price determined prior to planting. This article examines the HPO policy issue. See the end of the post for a note on the use of the term, harvest price option.
November 7, 2012
2012 ElectionWhile votes remain to be counted and races to be determined, the U.S. has chosen to stay with its current split-party alignment of a Democratic President, a Democratic Senate, and a Republican House of Representatives. This post briefly looks at the key issues in this election while also examining what the election potentially tells us about ourselves and the forthcoming policy agenda.
November 2, 2012
The Biofuels Era - A Changing of the Guard?The increase in corn used for ethanol has been a major driver of crop prices in the New Era that began in the Fall of 2006. In the face of one of the worst droughts of the last century this summer, there have been numerous calls to limit the policy incentives to use corn for ethanol production in the upcoming year. The U.S. Environmental Protection Agency (EPA) is currently considering formal requests for this potential relief. While ethanol has garnered nearly all of the headlines in recent years, its role as the leading driver of crop prices may be nearing an end.
October 31, 2012
Still More on Position Limits, Excessive Speculation and the Dodd-Frank ActTwo recent farmdoc Daily posts discussed the history of position limits and reviewed the CFTC's recently-overturned position limit rules, respectively. Today's post is the last in this series, and will examine the court ruling and discuss possible next steps by the CFTC.
October 25, 2012
Wheat FeedingIn its October World Agricultural Supply and Demand Estimates (WASDE), the U.S. Department of Agriculture (USDA) increased the estimated feeding of wheat during the current 2012/13 wheat crop year by 95 million bushels to 315 million bushels. This change was prompted by the September 1 stocks report and suggests that increased feeding of wheat will join increased imports and reduced consumption as market responses to the drought-reduced 2012 corn and soybean crops. Therefore, this article examines the historic role of wheat feeding in the U.S. and the factors associated with it.
October 24, 2012
More on Position Limits, Excessive Speculation and the Dodd-Frank ActA previous farmdoc Daily post discussed the history and operation of position limits - the maximum number of futures contacts that can be owned or controlled by an individual or entity - as a way to control excess speculation. To help our readers better understand this issue, today we will review the CFTC's position limit rules that were struck down recently by Judge Robert L. Wilkins, with a focus on the agricultural commodities. A future post will explore Judge Wilkins' ruling and discuss possible next steps by the CFTC.
October 17, 2012
Position Limits, Excessive Speculation and the Dodd-Frank ActCommodity position limits - the maximum number of futures contacts that can be owned or controlled by an individual or entity - have been in the news since Judge Robert L. Wilkins of the US District Court for the District of Columbia rejected a new system of position limits developed by the Commodity Futures Trading Commission (CFTC). To help our readers understand the implications of this action, today's farmdoc Daily will lay the groundwork by reviewing the history and operation of position limits. A later post will discuss the rejected CFTC position limits and evaluate the impact of Judge Wilkins' ruling.
October 12, 2012
Relative Importance of Price vs. Yield variability in Crop Revenue RiskManaging crop revenue risk is of critical importance for financial success by agricultural producers and a central theme of many government commodity and insurance programs. Debate surrounding the farm bill for example, includes various programs intended to limit revenue variability that arises from low crop prices, production declines as might happen under a drought, and so forth. Crop insurance is critical for most commercial scale producers to protect against the consequences of poor relative crop performance or price declines, but is remains debated whether price risk or yield risk is more likely to influence insurance payments. In general, farm-level crop revenue risk results from price variability, yield variability, relationships between prices and yields, and relationships among the crops produced. It is important to first understand the underlying causes of crop revenue risk to better assess the effectiveness of various strategies and programs that might be used to mitigate crop revenue risk. Improving the understanding of the relative influences of price and yield risk is the intent of this farmdoc daily post.
October 11, 2012
Kazakhstan, Russia, Ukraine (KRU) and World Grain MarketsA major change in world grain markets over the last quarter century is the increasing role of Kazakhstan, the Russian Federation, and Ukraine (KRU). This change is examined in this article.
October 5, 2012
How Green Economy Metrics Have Failed the Renewable Fuel StandardEmerging renewable energy policies such as the U.S. Renewable Fuel Standard (RFS), the E.U. Renewable Energy Directive (RED), and the California Low Carbon Fuel Standard (LCFS) require increasing amounts of biofuels in energy portfolios. USDA estimates that at least 527 biorefineries must be built in the U.S. to reach these goals, at a cost of $168 billion. In promoting its renewable energy agenda, the White House has touted not only the environmental benefits of biofuels, but also the energy security and rural development potential of a "green economy". Such an economy "generates economic activity that preserves and enhances environmental quality while using natural resources more efficiently". A backlash against the biofuels industry is mounting from myriad directions, however, including the "food versus fuel" debate and carbon accounting. Biofuels advocates fear the loss of public and Congressional support for the fledgling sector in the wake of conflicting messages. The threat of rising food and feed prices from this season's drought only will exacerbate biofuels advocates' uphill battle in the U.S. policy arena against grocers and cattlemen lobbies who object to rising costs of feedstocks, and NGOs concerned about food insecure countries that depend on imports.
September 27, 2012
Interaction between Crop Insurance and Price Support ProgramsA key issue framing the 2012 Farm Bill debate is the interaction among farm safety net programs. Attention has focused mostly on the interaction between crop insurance and the shallow loss programs, such as ACRE in the 2008 Farm Bill, ARC in the 2012 Senate Farm Bill, and RLC in the 2012 House Agriculture Committee Farm Bill. In contrast, this article examines the interaction between insurance and the counter-cyclical and marketing loan price support programs
September 20, 2012
The Nested Structure of the RFS2 Biofuel Mandate and RIN ValuesIn earlier posts, we have discussed various topics related to the RFS2 mandates and, more specifically, the Renewable Identification Number (RIN) system used to enforce mandate compliance. Thus far we have focused directly on the market for ethanol RINs and the information their values contain about the short-term impact mandate waivers may have on corn for ethanol use. In this post, we shift focus towards the advanced component of the mandate which corn-based ethanol cannot fulfill. First, we describe the nested structure of the overall mandate and the implied hierarchy of ethanol RIN values. We then use this hierarchy to calculate a rough estimate of the increase in relative corn prices which would be required to make ethanol produced from advanced feedstocks, such as Brazilian sugar-cane ethanol, competitive with corn-based ethanol in meeting the mandates.
September 7, 2012
2012 Farm Bill Debate: Multiple-Year Risk Assistance ProgramsMost farm safety net provisions in the Farm Bills passed by the full Senate and the House of Representative's Committee on Agriculture can be classified into 3 categories: (1) enhancements to crop insurance, (2) assistance against shallow losses, and (3) assistance against losses that extend across multiple crop years. This farmdoc post focuses on the alternative proposals for multiple-year risk assistance.
September 6, 2012
RIN Values: What Do They Tell Us about the Impact of Biofuel Mandates?The impact of the US drought on the price of corn and other feed grains and oilseeds has made the arcane subject of Renewable Identification Number (RINs) and the role of US biofuel policy of great interest this year. For example, there have been a number of recent calls to the EPA for waivers of the RFS mandates to relieve pressure on food prices for consumers and feed prices for livestock producers. In this post we review the basic economics of the ethanol market both with and without the RFS mandate, and discuss RIN valuation under both conditions. We then provide some speculation as to the support the RFS mandates are currently providing to corn prices based on recently observed RIN prices.
August 30, 2012
2012 Drought: Yield Loss, Revenue Loss, and Harvest Price OptionThis article examines the impact of the 2012 drought on per acre revenue for corn and soybeans compared with the revenue expected in February. The article also examines the impact of crop insurance and, more specifically, the harvest price option, on per acre revenue. The harvest price option permits the insurance guarantee to be calculated using the higher of the insurance plant price determined in February for corn and soybeans or the price determined at harvest. Despite the reduction in yield caused by the drought, per acre revenue is higher in August than in February for the average U.S. acre of corn and soybeans. To emphasis, the previous statement is for the average acre of corn and soybeans; many farms will have yield declines greater than the average decline. However, the harvest price option may result in some of these farms also having August revenue greater than the February revenue.
August 23, 2012
The Impact of the 2012 Drought on Corn and Soybean Yield Updates for the PLC ProgramThe House Ag Committee's 2012 Farm Bill allows farmers to choose between a fixed price support program (PLC) or a county-level revenue program (RLC). The price program, referred to as Price Loss Coverage or PLC, has a similar design to that of the current counter-cyclical program (CCP). Exceptions are that PLC would provide payments based on planted (rather than base) acres, and PLC reference prices are set above current CCP target prices. In addition, producers will have the option of updating their current CCP payment yields.
August 22, 2012
Non-Harvested Corn and Soybean Acres: Historical ContextThe share of acres planted to corn and soybeans that will be harvested in 2012 has emerged as a topic of interest as the U.S. drought has intensified. The topic has garnered even more interest in light of the U.S. Department of Agriculture's (USDA) August crop production report that confirmed double digit declines in average U.S. corn and soybean yields. This article examines the data since 1974 to provide perspective on the share of non-harvested acres. A simple historically-based analysis suggests that the share of corn and soybean acres reported as non-harvested in the August report may be somewhat higher than is consistent with the historical evidence since 1974. However, historical examination provides only a guide and history rarely replicates itself. Thus, this article raises an observation for consideration rather than making a conclusion.
August 16, 2012
Shallow Loss Programs and the 2012 Farm Bill DebateA signature issue of the 2012 farm bill debate is the addition of a shallow loss program to complement existing crop insurance. Shallow loss programs are included in the farm bills passed by the U.S. Senate and the House Committee on Agriculture. Unless the policy environment changes dramatically, the main question is which version(s) of shallow loss programs will be chosen. This article describes the general approach and program specifics of the various shallow loss proposals and offers some limited, initial observations.
August 9, 2012
Price vs. Revenue Farm Safety NetAn issue of disagreement during the 2012 Farm Bill debate is whether the farm safety net should focus on revenue or price. Until the ACRE program was enacted in the 2008 Farm Bill, farm programs focused on price. This article compares price and revenue programs, focusing on the key role played by the correlation between changes in price and changes in yield. The examination finds that converting to a revenue based farm safety net likely will likely increase the effective risk management provided by the farm safety net and will likely result in more support being provided to Southern crops.
August 1, 2012
An Update on RIN Stocks and Implications for Meeting the RFS2 Mandates with Corn EthanolThe drought conditions experienced in 2012 have raised concerns over rationing corn usage for the remainder of the 2011/12 and into the 2012/13 marketing years. Of particular interest is how this might impact ethanol producers and obligated parties in meeting the RFS2 mandates in 2013 with corn-based ethanol
July 26, 2012
Comparison of Changes in Program Spending in the Senate and House Farm BillsThe Senate passed their version of the 2012 Farm Bill on June 21, 2012. On July 5 Representative Frank Lucas, Chairman of the House of Representatives Committee on Agriculture released a draft of the Federal Agriculture Reform and Risk Management Act of 2012 which was passed by the House Ag Committee on July 11, 2012. Both the Senate and House Committee versions of the 2012 Farm Bill have been scored by the Congressional Budget Office (CBO) to achieve significant savings - more than $23 billion for the Senate version and more than $35 billion for the House Committee bill over the 10 fiscal years from 2013 through 2022.
July 12, 2012
Price Loss Coverage in the House Discussion Bill and Acreage DecisionsListen to MP3 podcast
The House Agriculture Committee released a discussion draft of the 2012 Farm Bill, which is further described here. This draft includes a target price program called Price Loss Coverage (PLC), a different approach from revenue options in the Senate Farm Bill. If the House Discussion Bill becomes law, farmers will be able to choose between PLC and Revenue Loss Coverage, essentially a county revenue program similar to the ARC program in the Senate Farm Bill. Herein PLC is described. Parameters of the House Bill cause estimated payments from PLC to be higher for wheat, rice, and peanuts than for corn and soybeans, potentially impacting acreage decisions.
July 10, 2012
First Draft of New House Farm BillOn July 5, 2012, the U.S. House Committee on Agriculture released a discussion draft of the 2012 Farm Bill. The Bill's title is the Federal Agriculture Reform and Risk Management Act (FARRM). This article summarizes provisions in FARRM that concern the safety net for U.S. crops: The provisions are in Title I, Commodities and Title XI, Crop Insurance.
July 5, 2012
Update on U.S. Senate Version of Crop Safety NetThis update reflects the debate by the entire U.S. Senate on the Agriculture Reform, Food, and Jobs Act of 2012, the Senate's 2012 Farm Bill. The article's focus is amendments related to the crop safety net. An overview of the crop safety net in the Senate farm bill and observations on the Bill as passed by the Senate Committee on Agriculture, Nutrition, and Forestry are available at farmdoc Daily.
June 21, 2012
Farm Payment Limits: History and ObservationsDebate over limits on payments by farm safety net programs has become increasingly passionate. In the current 2012 Farm Bill debate, significant attempts likely will be made (1) to further tighten existing payment limits and (2) to implement limits on crop insurance. Therefore, this post discusses the history and several interrelated topics concerning farm payment limits. Please note, this discussion neither endorses nor opposes payment limits.
June 14, 2012
Comparing Revenue Protection Offered by ARC and SCOPrevious posts have discussed some of the details for the Ag Risk Coverage (ARC) and Supplemental Coverage Option (SCO) programs as they are outlined in the Senate Ag Committee's 2012 Farm Bill. While both programs are designed as risk management tools to provide revenue or yield protection to producers, the programs differ in their proposed design. This post discusses some of those differences, focusing on the prices and yields each program uses in determining payments.
June 13, 2012
Differences across Crops in Spending Under the 2012 Senate Agriculture Committee Farm BillListen to MP3 podcast
The Farm Bill passed by the Senate Agriculture Committee has commodity program payments tied to risk management through such program as Agricultural Risk Coverage (ARC) and cotton STAX. This emphasis differs from the 2008 Farm Bill where most commodity title payments are direct payments. The emphasis shift from direct payments to risk management changes the mix in spending across crops. Wheat, cotton, rice, and peanuts have larger proportional spending reductions than corn and soybeans. Given a risk management focus, it will be difficult to avoid having some crops taking larger spending reductions.
June 7, 2012
Understanding the Supplemental Coverage OptionIn addition to the Ag Risk Coverage (ARC) program in the Commodity Title, the Senate Ag Committee's 2012 Farm Bill also includes an optional program to supplement individual insurance coverage with county-level yield or revenue coverage in the Crop Insurance Title. The Supplemental Coverage Option, or SCO, offers county-level coverage for a portion of the individual farmer's insurance deductible. For farmers who choose to enroll in the ARC program, SCO will cover losses ranging from their elected insurance coverage level to 79% of the SCO guarantee, resulting in a 21% deductible. For farm not enrolled in ARC, SCO coverage would range from their insurance coverage level to 90% of the SCO guarantee, resulting in a 10% deductible.
June 5, 2012
Performance of the Super Committee Target Price ProposalListen to MP3 podcast
A target price program that pays when national market year average price falls below a target price may be included as choice for farmers in the next Farm Bill. Farmers would then be able to choose between the target price program and other revenue alternatives. In this post, an analysis is presented of the target price option contained in the Farm Bill proposal made as part of Super Committee deliberations last year. Frequency of payments will vary across crops because the relationship between the proposed target price and long-run price varies across commodities. A target price program would not necessarily make payments in years of low revenue
May 31, 2012
Olympic Moving Average and Potential Price ProtectionRecent discussions over the farm safety net have focused on the need for price protection. This article examines the price protection provided by a 5-year Olympic moving average of price. A specific focus is its performance during the price decline of the late 1990s, the last multiple-year period of low prices experienced by the U.S. crop sector.
May 15, 2012
Update on U.S. Senate Ag Committee version of New Farm BillThis update reflects additional information regarding the farm safety net in the 2012 Farm Bill voted out by the U.S. Senate Committee on Agriculture, Nutrition, and Forestry (Agriculture Reform, Food, and Jobs Act of 2012). This update mostly reflects additional information about the Supplemental Coverage Option (SCO) for crop insurance. In a few cases, corrections are made to my misinterpretations of the Bill's provisions or to clarify provisions so as to reduce the potential for misinterpretation by readers.
May 8, 2012
U.S. Senate Ag Committee version of New Farm BillOn April 26, 2012; the U.S. Senate Committee on Agriculture, Nutrition, and Forestry reported the Agriculture Reform, Food, and Jobs Act of 2012 (2012 Farm Bill) to the full Senate for its consideration. This article summarizes provisions that concern the safety net for U.S. crops: The provisions are in Title I, Commodity Programs; Title XI, Crop Insurance; and Title XII, Miscellaneous.
May 4, 2012
Estimates of Regional Shifts in Commodity Program Support: IL Corn and SoybeansThe Farm Bill recently passed by the Senate outlines some major changes to programs included in the Commodity Title. As expected, the direct, counter-cyclical, and ACRE programs were replaced by a revenue program referred to as Ag Risk Coverage (ARC). This shift towards a risk-based program has implications for the relative impact on crop producers across the country. In general, while the expected overall levels of support for producers will decline due to budget cuts, moving from a program which provides fixed payments to farmers which are proportional to productivity levels (direct payments) to a program which provides support when revenue declines from an historical average benchmark (ARC) will tend to favor producers in areas of higher crop yield risk. Today's post estimates this effect for Illinois corn and soybean producers by comparing support levels under the direct payment program to the expected payments from the Senate's county-level ARC program.
April 26, 2012
First Draft of New Senate Farm BillListen to inteview on MP3 podcast
On April 21, 2012, what is called the Chair Mark for the 2012 Farm Bill was released by Senator Deborah Stabenow, Chair, of the U.S. Senate Committee on Agriculture, Nutrition, and Forestry. This is the first publically released draft of the 2012 Farm Bill. The Chair Mark will form the basis for deliberations by the Committee as it completes writing the Farm Bill. This article summarizes provisions in the farm bill that concern the safety net for U.S. crops: The provisions are in Title I, Commodity Programs, and Title XI, Crop Insurance.
April 19, 2012
Net Payments to Farmers by Crop Insurance: Historical Trends and the 2012 Farm Safety Net DebateListen to inteview on MP3 podcast
Because the public subsidizes part of the premium for crop insurance, over time payments by crop insurance to all farms who buy crop insurance exceed the insurance premiums paid by all farms. This paper examines historical trends in crop insurance from the perspective of net insurance payments and also places these payments within the 2012 farm safety net debate.
April 12, 2012
Graphical Illustrations of Proposed Farm Revenue Programs and Crop InsuranceThe Revenue Loss Assistance Program (RLAP) is a proposal put forward by Senators Conrad, Baucas, and Hoeven as a 2012 Farm Bill alternative for making counter-cyclical revenue payments. This alternative differs from others in that crop insurance payments are included in its calculation, often leading to reduced RLAP payments when crop insurance payments occur. Inclusion of RLAP will reduce incentives for farmers to buy higher levels of crop insurance. Impacts on crop insurance purchases are examined in this post for corn given prices in 2012. A more typical price scenario also is examined.
April 6, 2012
Understanding the Lifespan and Maturity of a RINIn the March 15th post, the banking and borrowing provisions for Renewable Identification Numbers (RINs) were described, and an estimate of existing RIN stocks was provided along with a discussion of the potential implications for corn demand if the economics of ethanol blending were to change. Today, I am going to outline the lifespan of a RIN from production, to separation from the physical biofuel, to its eventual assignment for an obligated party's mandate or expiration. Then, we'll take a look at the prices for RINs created in 2010 to relate this maturity information to RIN valuation.
March 15, 2012
Is the Ethanol Mandate Truly a Mandate? An Estimate of Banked RINs StocksRapid and continued growth in the ethanol market is widely acknowledged to be a major component in the increase in grain prices we've experienced since 2005. To date, the economics of ethanol blending, through the blend margin between ethanol and gasoline prices and the tax credit available to ethanol blenders through 2011, have been able to support continued growth in ethanol and corn demand (see the post from December 15 for more information). Despite the potential for these conditions to change, the renewable fuel mandates outlined under the current Renewable Fuel Standard (RFS2) are often cited as a justification for a continued bullish outlook or, at the very least, a safety net for the corn market. However, the ability of fuel blenders to shift portions of their mandate compliance across time using Renewable Identification Numbers (RINs) could result in negative shocks to corn demand for ethanol even under binding and enforced renewable fuel mandates.
March 7, 2012
Freedom to Farm, Changes in Planted Acres, and Policy ObservationsAn important change in U.S. farm policy occurred when the Federal Agriculture Improvement and Reform Act of 1996 eliminated acreage set asides. Supply controls had been a feature of U.S. farm policy since the Agricultural Adjustment of 1933. This article examines both the short and longer term changes in 2 aspects of managing a farm that resulted from the so-called ?Freedom to Farm? provision.
March 2, 2012
Market Oriented vs. Fixed Supports and the 2012 Farm BillA key issue framing debate on the 2012 Farm Bill is whether farm supports should be market oriented or fixed by Congress. The issue is most clearly seen in the debate over target prices fixed by Congress vs. a shallow loss program, such as ACRE, with assistance levels tied to market revenue. Similar debates have occurred throughout the history of U.S. farm policy. This article first reviews these historical debates, often referred to at the time as a debate over flexible vs. fixed farm supports. An explanation is then proposed for why the U.S. has consistently chosen flexibility and market orientation. The article then discusses the 2012 Farm Bill debate.
February 10, 2012
Crop Insurance and the Future Farm Safety NetA strong view has emerged this past year from many farm groups that crop insurance should play a pivotal role in the 2012 Farm Bill and beyond. Meanwhile, some have questioned the near-consensus support for crop insurance. This article addresses why crop insurance has taken on a primary position among farm support programs and examines alternative paths that crop insurance could take in the future, including some ways it could assume an even larger role.
January 25, 2012
ACRE Price Component Forecast, 2012 CropFarmers and land owners currently enrolled in the traditional farm programs for the 2011 crop year will have the opportunity to choose between the traditional farm program suite and the ACRE farm program suite for the upcoming 2012 crop year. The traditional suite consists of the direct payment, marketing loan, and price counter-cyclical programs. The ACRE suite consists of the ACRE state revenue program, 80% of direct payments, and marketing loans with a loan rate at 70% of the traditional program's marketing loan rate. The ACRE state revenue benchmark for the 2012 crop will equal (the Olympic average (high and low yield discarded) of a state's yield per planted acre for the 2007-2011 crop years times average U.S. cash price for the 2010 and 2011 crop years). This article looks at a forecast of ACRE's 2012 price component.
January 19, 2012
Country Contribution to World Economic Activity and GrowthDuring the last several months, world economic growth has emerged as an issue. To provide context, this article identifies the 10 countries with the largest economy as measured by gross domestic product (GDP) as well as the 10 countries that have contributed the most to world economic growth since the onset of the 2007 financial crisis. In addition, information is provided on the Euro area because of the attention currently being focused on it. The Euro area is composed of 17 countries that use the Euro as their currency. These 17 countries are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovak Republic, Slovenia, and Spain.
January 13, 2012
Distributional Impacts of Capping Eligibility for Commodity Program PaymentsU.S. government farm commodity program funding is being targeted for reduction to help decrease the federal budget deficit. While commodity program payments are mandatory, program funding can be altered annually through the fiscal year appropriations. Toward that end, Congress has initiated a review of the current legislation which will expire in 2012. Currently, forces influencing the review include the burgeoning federal budget deficit, historically high but volatile farm commodity prices, and agricultural trade agreements which seek to reduce trade distortions. To help reduce government expenditures, capping eligibility using a means test for commodity program payments was used in both the 2002 and 2008 farm bills and may be one of the items Congress looks at to reduce farm commodity program expenditures. This paper examines the impact of limiting eligibility to recipients who have an Adjusted Gross Income (AGI) of more than $250,000.
January 5, 2012
ACRE State Revenue Payments, 2010 CropsThis article examines per acre state level revenue payments made by the ACRE program for the 2010 crop of barley, corn, canola, upland cotton, grain sorghum, oats, peanuts, rice, soybeans, sunflowers, and wheat. For each crop, at least 1 million acres was harvested in 2010.
January 4, 2012
Why Was ACRE a No-Go with Iowa Farmers?In 2009, crop farmers in Iowa and other states faced the decision of whether to continue with the existing Direct and Counter-cyclical Program (DCP) offered by the Farm Service Agency (FSA) of the United States Department of Agriculture (USDA) or to enroll in a new program called Average Crop Revenue Election (ACRE). The counter-cyclical payments and marketing loans--or loan deficiency payments--available under DCP helped mitigate commodity price risk, while ACRE offered producers a chance to protect against falling crop revenue. However, producers were required to give up some of the benefits of the old program, including a 20% reduction in the direct payments, a 30% reduction in marketing loan rates, and 100% of counter-cyclical payments if they enrolled in ACRE. Prices for the two primary crops grown in Iowa, corn and soybeans, were at high enough levels that counter-cyclical payments and loan deficiency payments were unlikely to be available, so producers had to choose between retaining a small, but certain, cash benefit--80% of the direct payments--each year, and possibly receiving a larger revenue deficiency payment if certain unfavorable combinations of prices and yields occurred in one or more of the next four crop years.
December 28, 2011
2011 IFES: An Overview of Proposed Changes to Farm PolicyListen to MP3 podcast
This session will focus on proposed changes to farm programs for the 2012 Farm Bill. Throughout the summer and fall of 2011, changes to farm programs hinged on the highly anticipated outcome of the Joint Committee on Deficit Reduction.
December 14, 2011
Biotechnology and Variation in Average U.S. YieldsIn a previous article, we compared the trend in U.S. average yield per harvested acre for the 1940-1995 and 1996-2011 periods. The year 1996 was the first year that biotech varieties of crops were commercially adopted in the U.S. The analysis included 14 crops, 3 biotech crops (corn, cotton, and soybeans) and 11 crops for which adoption of biotech varieties is limited. This article specifically examines the deviation of average U.S. yield from its trend-line yield. The objective is to provide information concerning the commonly-expressed argument that biotechnology has reduced yield variability.
December 7, 2011
Biotechnology and U.S. Crop Yield TrendsBiotechnology varieties first became available for commercial use in the U.S. in 1996. By 2011, they accounted for 88%, 90%, and 94% of the acres planted to corn, upland cotton, and soybeans, respectively (U.S. Department of Agriculture (USDA), National Agricultural Statistics Service (NASS)). For other crops, adoption of biotech varieties has been limited or nonexistent. Given that 15 years have passed, this article compares the trend in U.S. average yield since 1995 with the trend that existed from 1940 through 1995, a period that predates commercial biotech varieties. The year 1940 approximates when the average yield of most U.S. crops began increasing, due in part to traditional breeding methods.
November 30, 2011
Sustainability of Large Payments by ACREThe ACRE farm program is based on three foundations:
1. The only acceptable rationale for a farm safety net from the perspective of economics is to provide assistance for systemic farm risk because systemic risk results in the failure of private insurance markets.Like any risk management program, ACRE can make large payments if a widespread, large systemic risk occurs that affects many farmers at once. However, because ACRE's revenue benchmark can decline by up to 10% per year, it is unlikely that ACRE will make large payments for extended periods. This article examines the ACRE adjustment process over time.
2. Assistance should be temporary to encourage the farm sector to be economically efficient and to minimize the long-term burden on taxpayers; it should slow but not stop adjustments to major structural changes.
3. The program's benchmark targets should be denominated in revenue instead of price because revenue is a more encompassing measure of farm risk.
November 22, 2011
The FDA's Food Safety Modernization Act and Its Economic ImplicationsThe 111th Congress enacted the FDA (Food and Drug Administration) Food Safety Modernization Act (FSMA) which was signed into law by President Obama on January 4, 2011. This is the first comprehensive reform of FDA food safety policy since the Federal Food, Drug, and Cosmetic Act was enacted in 1938, although the food safety programs of the U.S. Department of Agriculture's FSIS (Food Safety and Inspection Service) and EPA (Environmental Protection Agency) had been modified in the interim.
November 16, 2011
Caloric Sweetened Beverage Taxes: The Good Food/Bad Food TrapObesity has become so prevalent and its correlation with a broad set of chronic diseases so compelling that few would argue society should do nothing about it. The policy debate is not about whether to act but about what to do. This article contrasts the recommendation to tax one class of food--caloric-sweetened beverages--with a more comprehensive strategy.
November 4, 2011
Critical Issues for Agricultural CooperativesCooperatives are user owned businesses that are an important part of the U.S. economy and particularly prevalent in the agricultural sector. In 2009, cooperative businesses in the United States controlled over $3 trillion in assets, generated nearly $654 billion in revenue, employed over 2 million people and distributed nearly $79 billion in income to user/owners. Agricultural marketing cooperatives generate nearly $130 billion in revenue and over 200,000 jobs. Cooperatives operate under a business model that generates unique challenges in financial management, governance, strategy and communication. These unique challenges and the prevalence of cooperatives in U.S. agriculture have encouraged research and education efforts by agricultural economists since the early 1900's.
October 26, 2011
Should Soft Drinks be Taxed More Heavily?The articles in this theme consider a controversial policy issue: whether sweetened soda should be subject to increased taxation. The justification for such taxes relates both to economics and public health, but such taxes are hardly without critics. The authors of these articles are drawn from numerous fields: medicine, public health, economics, applied economics, political science, public affairs, and industry. They represent a cross-section of informed opinion and analysis that we hope will be helpful as the debate unfolds.
October 21, 2011
Innovating Policy for Chesapeake Bay RestorationThe Chesapeake Bay is North America's largest and most biologically diverse estuary. It has provided a rich bounty of crabs, shellfish, and fish, and high quality recreational opportunities. However, the Bay living systems have been increasingly stressed over time by the pressures of growing populations--there are over 20 million people in the 166,534 km2 mile watershed--industrial pollution, atmospheric deposition of air pollutants, and conversion of forests to farms--especially animal intensive farming--and to urban development. Significant reductions in polluting discharges from sewage treatment plants, factories, and other point sources of pollution have been achieved in the Bay watershed since the 1970s. But these reductions have not been enough to meet established water quality goals because point sources are only part of the problem. Nonpoint sources, especially agricultural ones, are a major remaining source of the nutrients and sediments degrading the Bay.
October 14, 2011
Taxpayer Preferences for USDA ExpendituresDebates about the merits and demerits of farm policy frequently reemerge when a new farm bill is created or when economic conditions prompt lawmakers to contend with growing budget deficits. We are currently in the midst of both events: a new farm bill will be created in 2012 and concerns over the deficit are higher now than any time in recent history. On one side of the farm bill debate are a majority of professional economists who believe that U. S. agricultural subsidies should be eliminated (Mankiw, 2009). Yet, on the other side, the public and farm lobbying groups favor government subsidization of farmers (Ellison, Lusk, and Briggeman, 2010). Growing budget concerns have prompted the Obama Administration to express support for cutting direct payments to large agricultural producers who make more than $500,000 in annual sales revenue, reducing crop insurance subsidies, and eliminating cotton storage credits. It is argued that funding should be targeted to family farms rather than "corporate megafarms" (OMB, 2009).
October 13, 2011
More on Price Risk Protection of Government Programs and Crop InsuranceIn the October 4th post, Gary Schnitkey pointed out the difference in the intra-year price risk protection offered by crop revenue insurance programs and risk that may persist over multiple crop years due to price declines relative to historical averages. In the figure from that post, Schnitkey highlighted two eras - the mid-80s and 1998-2002 - as two periods where insurance price guarantees (base prices) would have been below the 5-year average price level. This indicates periods of potential financial stress where crop revenue insurance coverage might have been considered inadequate.
September 23, 2011
EPA Mandate Waivers Create New Uncertainties in Biodiesel MarketsUnited States biofuel policy includes mandates that require that at least certain volumes of different types of biofuels are used domestically. The total mandate rises to 36 billion gallons in 2022, with increasing submandated usage of at least 1 billion gallons of biodiesel and 16 billion gallons of biofuels from cellulosic biomass and agricultural wastes. However, the most recent legislation setting out these mandates, the Energy Independence and Security Act (EISA) of 2007, gives the Administrator of the Environmental Protection Agency (EPA) the authority to waive one or more mandates. As shown here, the flexibility to waive submandates individually or in concert with broader mandates introduces uncertainty for biofuels and agricultural commodity markets in the future.
August 12, 2011
The Environment of the Next Farm Bill DebateAs is always the case, the approaching end of a farm bill brings many questions. At this stage--with the 2012 crop year still covered under current legislation--the pressing questions revolve around: When? When will the debate begin in earnest? Will the House or Senate Ag Committee lead the way? Will the debate start and conclude in time for a policy to be in place before farmers make 2013 crop decisions? Or, will an extension of current legislation be necessary? Should we call it the 2012 Farm Bill, or will it not happen until 2013? Certainly, the congressional turnover of the 2010 elections has had an impact on the farm bill debate process. New leadership in both the Senate and House Agricultural committees requires the development of leadership priorities, agendas, committee staffing, and engaging stakeholders. How quickly these get off the ground will dictate how soon the committees can seriously take up the next farm bill. What we know for certain is that the current farm bill will expire after the 2012 crop year, and we will not plant the 2013 crop under 1949 permanent legislation provisions. So, ready or not, the debate begins.
August 5, 2011
Innovations to Support Beginning Farmers and RanchersAcross the United States, agricultural producers are responding to increased interest in the "Know your Farmer, Know your Food" concept promoted by the USDA, as well as growing market demand for local foods. At the same time, USDA and industry leadership have a growing concern about the aging farmer and rancher population, and wonder who will be the future food producers in this country. Subsequently, an unprecedented transition in farm enterprises and land use is occurring as the U.S. farm population continues to age, and in some regions, there is evidence of a "shift" from the conventional system of passing down operations within the same family or to farms with similar production plans with an emerging generation of beginning farmers who are at least two generations from an agricultural family background.
August 3, 2011
More on Explaining Regional Policy Differences: Planted vs. Base AcreageIn the post from July 15, a regional comparison of a proposed modification to the existing ACRE program was summarized. One of the main points of the analysis was that an area revenue program based on a lower level of aggregation (i.e. county-level vs. state-level) would result in fairly significant gains in support and risk reduction for Midwestern states relative to Southern states. Support currently offered under the direct payment program - the most commonly cited area for anticipated cuts to farm program spending - is also characterized by regional variation. Support currently offered under the direct payment program - the most commonly cited area for anticipated cuts to farm program spending - is also characterized by regional variation.
July 29, 2011
Farmland ValuesFarmland values are often viewed as the bellwether for the U.S. farm sector. Historically, booming farm incomes have been quickly capitalized into farmland values. Over the past year, cropland values in the Corn Belt have jumped more than 25% above year ago levels according to various university and Federal Reserve surveys. Moreover, ranchland values are posting strong double-digit gains in some regions of the country.
July 15, 2011
Regional Implications of a County-Based ACRE Program
As the deficit reduction debate rages on in Washington, the likelihood that fixed direct payments will be reduced or completely eliminated in the next Farm Bill continues to increase. However, potential changes to other farm safety net programs are less clear. The fact that farmers receive payments even during periods of high farm profits tends to be the strongest and most consistent criticism of the fixed direct payment program. This implied desire to reduce the inefficiency of the agricultural safety net can help to guide additional changes to Commodity Title programs which could help reduce farm program costs while providing more timely support.
June 28, 2011
Supreme Court Blocks Federal Common Law Public Nuisance Claims for Greenhouse Gas EmissionsThe U.S. Supreme Court rarely hears a case with a direct impact on agricultural production. Other than the Monsanto v. Geertson Seed Co. case from last year that resolved a procedural issue related to evidentiary hearings for injunctions, the most recent decision with a direct and substantial influence was the J.E.M. Ag Supply v. Pioneer Hi-Bred International case from 2001. That case affirmed the right of seed breeders to hold both utility patents and plant variety protection certificates on seeds. 534 U.S. 124 (2001). Other cases have had an indirect effect on agriculture, such as takings or water regulation. For example, in Kelo v. City of New London, the Court confirmed the government's ability to use eminent domain to transfer land from one private owner to another in the interest of economic development. 545 U.S. 469 (2005). In Rapanos v. United States, 547 U.S. 715 (2006), the Court limited the federal government's jurisdiction under the Clean Water Act. Both of these cases provide rough outlines to the extent of government interaction on privately held lands--including farmland.
June 21, 2011
Miscanthus Incentive Program Will Further Understanding of Environmental and Societal Impacts of Energy Biomass SystemsTitle IX of the 2008 Farm Bill authorized the first federal government subsidy program for energy biomass known as the Biomass Crop Assistance Program ("BCAP"). After years of delay, the Farm Service Agency (FSA) is now in full swing implementing the "Project Area" portion of the Program. Project Areas provide establishment and annual payments to producers for the planting and growing of non-food-based perennial crops and trees. The other portion of BCAP-Matching Payments (MPs)-pays an eligible material owner up to $45 per dry ton for the collection, harvest, storage and transportation of biomass delivered to a qualified biomass conversion facility. The MP program proved highly controversial in its initial implementation throughout 2009-2010, however, due to budgetary impacts and supply pressures it created for industries that depend on forest feedstocks such as mulch and particle board. Environmentalists further questioned the environmental effects of such a payment to the extent it encouraged overharvesting of forests. Therefore, FSA has delayed MP implementation at least through mid-Summer, if not permanently.
June 10, 2011
Farm Debt and the Farm Real Estate BubbleWith farmland values increasing at rapid rates over the past 5 years, there has been growing concern over whether we are facing a farm real estate bubble. The bubble view links current Fed policy and the resulting low interest rates to the increase in farmland investment activity, noting the similarities between today's interest rate and commodity price environment and that of the period leading up to the 1980s farm crisis. Arguments against the bubble view cite the current income generating ability of farmland, the hedge against inflation it provides as a real asset, and the reportedly lower debt loads currently held by farmers as compared to the period leading into the crisis of the 80s.
May 13, 2011
Fundamental Forces Affecting Agribusiness Industries, Part IIThis is the second part of the theme on the numerous challenges and opportunities resulting from a number of fundamental forces facing agribusiness industries. The first set of articles followed the value chain for plants and plant products and the retail industry. Those articles were published in the previous issue of Choices.
May 6, 2011
The ACRE Program Decision for 2011The ACRE program is now entering its third year of being offered in the 2011/12 marketing year. In 2009, ACRE triggered payments on Illinois corn and wheat acres. Corn farms enrolled in the program received an average payment of $25.17 per acre, while enrolled farms planted to wheat received an average payment of $89.41 per acre. ACRE payments in 2010 are unlikely for enrolled farms planted to corn or soybeans in Illinois due to marketing year price projections for 2010/11 being well above the levels needed to trigger payments. Farms planted to wheat and enrolled in the ACRE program are likely to receive payments again in 2010. Based on the April 8th USDA projection for the 2010/11 marketing year price and 2010 Illinois wheat yields, the average payment will probably be around $40-45 per acre.
Agricultural Sustainability Standards Moving Toward the Finish LineIn 2008, the Leonardo Academy embarked on process to facilitate the development of a national standard for sustainable agricultural cropping systems, under the rules of the American National Standards Institute (ANSI) (http://www.leonardoacademy.org/about/programs/sustainable-agriculture.html). The ANSI standard development requirements provide for an open, balanced, and transparent standards-setting process that is internationally recognized. Accordingly, Sustainable Agriculture Standards Committee responsible for developing the principles, criteria and indicators defining sustainable agriculture is comprised for a diverse group of stakeholders--including farmers, food companies, retailers, trade associations, government representatives, environmental organizations, labor organizations, consumer groups, certifiers and academics. For information on how to participate in this standard development process or to act as an official observer to this standard development, see http://www.leonardoacademy.org/programs/standards/agstandard/participate.html.
May 3, 2011
Profitability and Farm Size on Grain Farms in IllinoisThe effect of farm size on profitability is an issue continually analyzed and debated by agricultural economists. Profitability is impacted by a number of factors, many of which are controlled to some extent by the management decisions of the farm operator. In general, we tend to think there may be increasing returns to scale for grain farms, or that some normalized measure of profitability (i.e. net farm income per acre) may be enhanced by expanding the scale of the operation.
April 29, 2011
ACRE Program Enrollment in 2009 and 2010The Average Crop Revenue Election (ACRE) program was introduced in the 2008 Farm Bill beginning in the 2009 crop year. ACRE provides revenue-based support as an alternative to price-based counter-cyclical programs. By giving up 20% of their direct payments, and having their loan rates reduced by 30%, farmers can enroll their farms in the ACRE program and receive revenue protection based on a State-level, crop specific revenue guarantee.
April 20, 2011
Potential Cuts to Ag Spending: Direct Payments in IllinoisRecent discussions targeting agricultural programs for budget cuts always seem to center around the direct payment program. Direct payments (DP), along with crop insurance, were programs specifically mentioned in the FY 2012 budget passed by the House of Representatives on April 15. The budget resolution outlines cuts of $5.8 trillion in total government spending relative to the current budget baseline, and $30 billion in reductions in ag spending, over the next decade.
April 8, 2011
Agriculture in the Republican Proposal Presented by Paul RyanOn April 5th, Paul Ryan released a Republican proposal that describes broad outlines of Federal spending over the next decade. The document entitled "The Path to Prosperity: Restoring America's Promise" makes little mention of agricultural spending. Agriculture not receiving much focus makes sense given that spending on commodity and crop insurance programs constitutes only .5 percent of Federal outlays, hence the size of agricultural programs have very little impact on total Federal expenditures and Federal deficits.
Can State-Level Climate Policies Survive Constitutional Scrutiny?Over the past five years, California has filled the void in federal leadership though implementation of comprehensive climate change legislation. Commonly known as A.B. 32, its framework includes, among other policies, a Low Carbon Fuel Standard (LCFS) that aims to gradually reduce the overall carbon intensity (CI) of all transportation fuels consumed in California to 10 percent in 2020. Each fuel "pathway" is assigned a carbon intensity value based on "field to tank" lifecycle analysis (LCA). Midwestern corn ethanol, under the California Air Resources Board's (ARB's) LCA methodology, is assigned a similar CI to that of gasoline, in part due to a large CI penalty for emissions from indirect land use change.
April 6, 2011
Putting Agricultural Spending Into PerspectivePolicy debates are currently dominated by the budget. While this is true regardless of whether or not the topic is agriculture related spending, the heat has been put on ag spending - specifically farm programs - in many recent popular press articles. It is not difficult to find criticisms of farm programs and claims of their partisan motivations,and attacks against proposals which seem light on farm program spending cuts. The relatively healthy ag economy and significant increase in farm income levels over the past few years are the most often argued points against the current design of farm programs, and have made it increasingly difficult to continue to justify the need to support and smooth farm incomes.
March 30, 2011
"Progressive" Farm SubsidiesU.S. farm subsidies are often villified because a "disproportionate share of the benefits" go to large farms. In some sense, this shouldn't be surprising; farm subsidies are designed to pay farms for their productivity. Farmers receive a subsidy for each bushel (or pound, depending on the commodity) they produce. Produce more bushels, get more subsidies. Even more productive land receives higher subsidies (through Direct and Counter Cyclical Payments).
March 18, 2011
Measuring Indirect Land Use Change with Biofuels: Implications for PolicyListen to MP3 podcast
Biofuels have gained increasing attention as an alternative to fossil fuels. The three main motivations for increasing biofuel production include: reducing greenhouse gas (GHG) emissions, decreasing reliance on foreign oil, and stimulating rural development. The Energy Independence and Security Act (EISA) of 2007 established a Renewable Fuel Standard (RFS) that aims to increase the volume of renewable fuel from 9 billion gallons in 2008 to 36 billion gallons by 2022. The RFS imposes volumetric requirements for different types of biofuels based on their GHG emissions and sets an upper limit on corn ethanol of 15 billion gallons from 2015 onwards in order to encourage a transition to advanced and cellulosic biofuels which could reduce GHG emissions by more than 50% compared to gasoline.