Continuing the Current Farm Program

1. Continuing the Current Farm Program Pat Westhoff (westhoffp@missouri.edu) FAPRI at the University of Missouri (www.fapri-mu.org) Session on “Policy Options and Consequences for the 2012 Farm Bill” AAEA meetings Pittsburgh, July 26, 2011

2. Agenda • What the world looks like if a new farm bill simply continues current provisions • Commodity markets • Government program costs • Farm income • How the debt limit debate could change things, with update from bills just filed last night

3. Crop income and variable expenses Source: FAPRI-MU baseline, January 2011. Payments include direct payments, marketing loan benefits, countercyclical payments and ACRE payments. Assumes one acre of base for each acre planted and harvested.

4. Are “traditional” programs likely to be relevant? • Current prices are well above levels that would trigger marketing loan benefits or countercyclical payments • FAPRI, USDA, CBO projections all show wheat, feed grain and soybean prices remaining well above target prices and pre-2007 levels Source: FAPRI-MU baseline, January 2011. USDA’s July estimate of 2011/12 prices: $5.50-$6.50 per bushel

5. Crop price projections Sources: USDA’s World Agricultural Supply and Demand Estimates, July 2011 and FAPRI-MU’s US Baseline Briefing Book, March 2011. Note: FAPRI-MU plans to prepare a baseline update after August crop reports are released.

6. Oil prices and corn yieldsFrom the 2011 FAPRI-MU stochastic baseline

7. U.S. corn pricesFrom the 2011 FAPRI-MU stochastic baseline

8. U.S. farm income Sources: FAPRI-MU 2011 baseline

9. Selected farm program benefitsBillion dollars, 2001-10 actual and FAPRI projections for 2011-20 Source: Update of “Crop Insurance: Background Statistics on Participation and Results,” FAPRI-MU report #10-10, Table 1 (http://www.fapri.missouri.edu/outreach/publications/2010/FAPRI_MU_Report_10_10.pdf), using Jan. 2011 FAPRI-MU stochastic baseline figures.

10. Selected farm program benefits, 2001-2020 Projections based on FAPRI-MU 2011 stochastic baseline

11. Selected farm program benefitsDollars per acre, 2011-2020 stochastic average, FAPRI-MU projections Source: Update of “Crop Insurance: Background Statistics on Participation and Results,” FAPRI-MU report #10-10, Table 2 (http://www.fapri.missouri.edu/outreach/publications/2010/FAPRI_MU_Report_10_10.pdf), using Jan. 2011 FAPRI-MU stochastic baseline figures.

12. Farm program and market receiptsDollars per acre, 2011-2020 stochastic average, FAPRI-MU projections Note: Assumes one acre of base for each acre harvested. In reality, base acreage can be very different than harvested acreage. Source: Update of “Crop Insurance: Background Statistics on Participation and Results,” FAPRI-MU report #10-10, Table 2 (http://www.fapri.missouri.edu/outreach/publications/2010/FAPRI_MU_Report_10_10.pdf) using Jan. 2011 FAPRI-MU stochastic baseline figures.

13. “Mandatory” spending in CBO’s baseline: selected programs Notes: Estimates for farm and conservation programs are from CBO’s March 2011 baseline, and the nutrition program estimates are from CBO’s January 2011 baseline. Commodity Credit Corporation net outlays include commodity programs, export programs, one major conservation program (the conservation reserve program) and some other miscellaneous programs. CBO projects that net CCC outlays will total $97 billion over the FY 2012-FY 2021 period. Mandatory conservation program spending includes $39 billion in Natural Resources Conservation Service programs (EQIP, CSP, WRP, etc.) and $24 billion in CCC-funded programs (mostly CRP). Crop insurance spending by the Federal Crop Insurance Corporation reflects both premium subsidies to agricultural producers and program delivery costs.

14. Looking ahead • Policy outlook • Current debt limit debate could be critical • Ethanol tax credit ($0.45/gallon) due to expire at end of 2011, proposals to eliminate immediately • Major choices could be made long before 2012 farm bill is written

15. Debt limit debate • Could see changes in farm programs in the next week or at least by end of 2011 • Reid proposal from last night • Effective in 2012, make direct payments on 59% of base, down from current 85% (a 30% reduction) • This would reduce direct payments by about $1.5 billion per year • ACRE participation may increase if direct payments reduced • Net budgetary saving likely to be a little over $10 billion over FY 2012-2021 (summary of Reid says $10-$15 billion)

16. Debt limit debate • Boehner proposal from last night • No immediate changes in farm programs (I think) • But commitment to vote on a bill cutting mandatory spending by year end • House has previously agreed to budget for large cuts in farm, conservation and nutrition programs • Not clear which (if either) approach will be followed • But significant chance farm programs could change before the end of 2011

17. What happens if direct payments are eliminated? • Only modest impacts on commodity markets • Bigger impacts on farm income, farm program outlays, land values • See FAPRI-MU report #08-11 at our website, www.fapri-mu.org Note: Ranges reflect different assumptions about whether producers would choose to enroll in the ACRE program if direct payments are eliminated.

18. Thanks! • The proposed legislation • Senate: S.1323 (http://www.washingtonpost.com/r/2010-2019/WashingtonPost/2011/07/26/National-Politics/Graphics/Boehner-plan.pdf) • House: Amendment to S.627 (http://www.washingtonpost.com/r/2010-2019/WashingtonPost/2011/07/26/National-Politics/Graphics/reid-plan.pdf) • Yes, they are mislabeled by the Washington Post • FAPRI-MU website: www.fapri-mu.org • To contact me: • 573-882-4647 • westhoffp@missouri.edu