publication archive: Nick Paulson
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in 2012 in that the majority of existing commodity programs (direct, countercyclical, ACRE, and SURE programs) are repealed to achieve spending reductions. However, there have been some slight changes to the programs created to replace those being repealed, particularly in the new version from the Senate.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.
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.
March 7, 2013
Relationship between Crop Returns and Acreage DecisionsRelative corn and soybean prices over the past few crop years have encouraged expansion of corn acreage and the use of more corn intensive rotations throughout much of the Midwest. In general, and in central and northern Illinois in particular, increased corn acreage has come at the expense of fewer acres being planted to soybeans and, to a lesser extent, wheat.
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 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.
October 18, 2012
Cash Rents and Crop Revenues in IllinoisTis' the season for negotiating land rental agreements for the 2013 crop year. Recent posts have discussed trends in rental agreements and relative performance of share/flex and fixed cash rent agreements over the past few crop years. Today's post looks at the historical relationship between average cash rent levels in Illinois and average crop revenues. These historical relationships provide some basis for expectations for cash rental rates in the coming crop years.
October 4, 2012
Rental Rates for Share, Flex, and Cash Rent Agreements in IllinoisThe rapid rise in commodity prices and farm income levels over the past few years has resulted in significant increases in cash rent levels for farm land. Last fall, I wrote a post which showed the trend away from share leases to fixed cash rental agreements in Illinois over the past 15 years. In one of this week's posts, Gary Schnitkey discussed some other trends in cash rental agreements, including the continued increase in cash rental rates and the shift towards shorter-term or one-year leases. There are a number of reasons why fixed cash rent agreements might be preferred by both tenants and landlords. For example, they are relatively simple, provide the landlord with a fixed return, and provide more autonomy to the tenant in making management decisions. However, fixed cash rents at high levels imply more risk exposure for the tenant if crop returns fall below expectations due to price declines or yield shortfalls, or production costs are above expected levels. This is especially true for farm operators who are highly leveraged and/or rent a considerable portion of their total acres. Tenants in these situations may find it desirable to use a share or flex arrangement, but have difficulty in convincing landlords to consider an agreement which provides variable payments.
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 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 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 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 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.
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 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.
May 17, 2012
Annual Payment Limits for the ARC Program and Farm Size in IllinoisThe Farm Bill recently passed by the Ag Senate Committee proposes to replace the Direct, Counter-cyclical, and ACRE programs with a crop-specific revenue program called Ag Risk Coverage (ARC). Details about the ARC program have been provided in recent posts. Today I will focus on the proposed $50,000 limit on total payments for ARC and what types of grain farms might be affected by this limitation using some Illinois county examples. These examples show that payment limitations could affect a significant number of grain farms if ARC payments are triggered over the next Farm Bill period. Furthermore, since larger payments are triggered during periods of greater revenue losses, payment limits will tend to be met for smaller operations during periods when support is, arguably, most needed.
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 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 28, 2012
Annual Management Return Performance for Illinois Grain Farms: Yields and PricesThis post is the fourth and final in a series on the characteristics associated with financial performance of Illinois grain farms from 2005 to 2009. The first two posts in this series examined the characteristics of grain farm operations with consistent performance over the 5-year time period ? or farms which were in the top and bottom quartiles for management returns in each of the 5 crop years. The third post shifted focus towards performance on an annual basis ? or what characteristics could be identified for grain farms earning management returns in the top or bottom 25% in any given year from 2005 to 2009. Today's post focuses on crop yield and price levels across operations falling in the top and bottom quartiles for each year, and also provides some summary remarks based on what this series of posts has revealed.
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.
February 29, 2012
An Annual Look at the Components of Management Returns for Illinois Grain FarmsIn posts on December 8th and February 16th, we looked at the various factors determining persistent management return performance on Illinois grain farms over a five-year time period (2005-2009). These analyses indicated that grain farms which consistently achieved management returns in the top 25% (top quartile) of all farms had higher revenues and lower power costs, and tended to be slightly larger operations in terms of total tillable acres with a smaller percentage of cash rented acres. Differences in direct costs were not as large across performance groups, and the differences in revenues tended to be driven more by crop yield variation than price levels received.
February 16, 2012
A Follow Up on the Persistence of Management Returns: Yields and PricesBack on December 8th, we looked at the persistence of management returns among Illinois grain farms from 2005 to 2009. Todayï¿½s post follows up on a few of the questions we received from readers via email. Specifically, we look at the contribution of crop and price levels to the observed variation in revenues earned across farm performance groups.
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 8, 2011
Persistence in Management Returns for Illinois Grain Farms, 2005-2009In this post we take a look at the persistence of farm performance as measured by management returns for Illinois grain farms from 2005 to 2009 using data from the Illinois Farm Business Farm Management (FBFM) association. Management returns include gross revenues, direct inputs, power and equipment, building, labor, land, and other miscellaneous costs. Tax costs are not included with the exception of farmland property taxes. A total of 712 Illinois grain farms were included in the analysis. A grain farm was defined to be an operation with more than 90% of total acreage planted to corn and soybeans and less than 40% of the grain produced fed directly to livestock. Additionally, farms generating more than 10% of their total gross revenue through custom farming or livestock enterprises were not included.
November 16, 2011
Shift from Income Support to Revenue-Based Risk Management in Farm ProgramsChanges to Commodity Title programs in the 2012 Farm Bill currently hinge on the budget decisions which will come out of the Joint Committee on Deficit Reduction's (commonly referred to as the "Super Committee") charge to come up with $1.2 trillion in savings over the next 10 years. Existing proposals as to how cuts to agricultural programs will contribute to total savings range from $23 billion to $33 billion. For example, the Obama administration's proposal outlined $33 billion in cuts to farm programs, including the elimination of direct payments and vaguely defined cuts to the crop insurance program. The recent proposal from ranking members of the both the Senate and House Ag Committees suggested $23 billion in reductions to farm bill spending, primarily through the consolidation of existing farm programs.
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 15, 2011
Considering a Variable Cash Lease for 2012In the Tuesday September 13th post, information about average cash rent trends in Illinois was provided for use in negotiating rent levels for 2012. As cash rent levels continue to rise, producers might be interested in considering variable cash leases as an alternative form of rental arrangement for risk management purposes. Landowners may also be interesting in a variable lease which could offer larger rental payments and greater returns during years resulting in high crop revenues.
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 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.