publication archive: Carl Zulauf
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.
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 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.
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 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 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.
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 13, 2013
Prices Paid for Farm Inputs vs. Prices Received for Crops: Implications for Managing Risk and Farm PolicyThe prices that U.S. farms receive for crops have increased far less than have the prices U.S. farms pay for inputs. This difference is often presented as an indication of the economic pressure U.S. farms confront and thus used to justify the need for a farm safety net in general and price supports in particular. This article examines in greater detail the differential trends in crop output and farm input prices, drawing implications for managing risk and farm policy.
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 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 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.
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.
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 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.
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 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.
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 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.
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.
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.
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.
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.
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 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.
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.