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2002 Farm Bill

2002 Farm Bill. Decision Time Allan Gray and Chris Hurt Purdue University. 2002 Farm Bill. 6 Year bill Costs $180 billion over 10 years Almost a $6.0 billion dollar increase in annual spending for program crops Similar to emergency legislation spending from 1997-2001

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2002 Farm Bill

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  1. 2002 Farm Bill Decision Time Allan Gray and Chris Hurt Purdue University Allan Gray and Chris Hurt, Purdue University

  2. 2002 Farm Bill • 6 Year bill • Costs $180 billion over 10 years • Almost a $6.0 billion dollar increase in annual spending for program crops • Similar to emergency legislation spending from 1997-2001 • $17 billion in additional spending for Environment Allan Gray and Chris Hurt, Purdue University

  3. What is in the Commodity Title of the Bill? • Three Basic Support Mechanisms • Marketing Loans • Direct Payments • Counter-Cyclical Payments • Soybeans and Peanuts become complete program crops • Lentils, small chickpeas, wool, mohair, and honey are new commodities • Dairy gets a counter-cyclical program Allan Gray and Chris Hurt, Purdue University

  4. Comparison of Loan Rates Allan Gray and Chris Hurt, Purdue University

  5. Comparison of DirectPayment Rates Allan Gray and Chris Hurt, Purdue University

  6. Counter-Cyclical Payment Rates Allan Gray and Chris Hurt, Purdue University

  7. Computing Payments • Direct Payments (DP) • DP per unit X Base acres X DP yield X 0.85 = Direct Payment • Counter Cyclical Program Payments (CCP) • Target Price – DP per unit – higher of (loan rate or market price) = CCP per unit • CCP per unit X Base acres X CCP payment yield X 0.85 = CCP Payment • Marketing Loan Payments (LDP) • (Loan Rate – Market Price)*Current Production Allan Gray and Chris Hurt, Purdue University

  8. Corn Target $2.60 $2.60 $2.60 Corn Loan $1.98 $1.98 $1.98 Market Price $1.69 $2.28 $2.60 LDP $ .29 $ .00 $ .00 Direct $ 0.28 ($0.21) $ .21 $ .21 Counter Cyclical $0.34 ($0.27) $ .03 $ .00 Total $2.46 $2.52 $2.81 Payments Under Various Market Price Scenarios Allan Gray and Chris Hurt, Purdue University

  9. Cotton Target $.724 $.724 $.724 Cotton Loan $.52 $.52 $.52 Market Price $.42 $.60 $74 LDP $ .10 $ .00 $ .00 Fixed $ 0.0667 ($0.049) $ .049 $ .049 Counter Cyclical $0.14($0.109) $ .046 $ .00 Total $.678 $.695 $.789 Payments Under Various Market Price Scenarios Allan Gray and Chris Hurt, Purdue University

  10. Wheat Target $3.86 $3.86 $3.86 Wheat Loan $2.80 $2.80 $2.80 Market Price $2.60 $3.00 $4.00 LDP $ .20 $ .00 $ .00 Fixed $ 0.52 ($0.38) $ .38 $ .38 Counter Cyclical $0.74 ($0.59) $ .27 $ .00 Total $3.61 $3.63 $3.65 Payments Under Various Market Price Scenarios Allan Gray and Chris Hurt, Purdue University

  11. Allan Gray and Chris Hurt, Purdue University

  12. Loan = $1.98 $2.60-.28 = $2.32 Direct Payment CCP’s LPP’s Market Price Allan Gray and Chris Hurt, Purdue University

  13. Summary of Risk Impacts of 2002 Farm Bill • Potential to substantially reduce downside cash flow risk • Does not do a good job of protecting against yield drops Allan Gray and Chris Hurt, Purdue University

  14. Allan Gray and Chris Hurt, Purdue University

  15. Allan Gray and Chris Hurt, Purdue University

  16. Updating Base Acres and Yields • Five Basic Options • Make No Changes • Don’t update base acres or yields and simply add soybeans to fully base your acres • Maximize soybean base • Update base acres and CCP payment yields • Don’t update yields is an option • using 70% of the difference between 98-01 average yield and 1985 program yield • using 93.5% of the 98-01 average yield • Trade base acres of other crops for bean base Allan Gray and Chris Hurt, Purdue University

  17. Decision-Support Spreadsheet • Website for Farm Bill Spreadsheet: • http://www.agecon.purdue.edu/staff/gray/agrium/agrium.htm • Spreadsheet Example Allan Gray and Chris Hurt, Purdue University

  18. FSA Letter Page 1 Allan Gray and Chris Hurt, Purdue University

  19. FSA Letter from Page 2 Allan Gray and Chris Hurt, Purdue University

  20. Allan Gray and Chris Hurt, Purdue University

  21. Allan Gray and Chris Hurt, Purdue University

  22. Critical Issues • WTO negotiations • Competitiveness • Market responsiveness • Value of land and farmland rents • Budget costs Allan Gray and Chris Hurt, Purdue University

  23. Treating Symptoms or Curing Problems? • Will this farm bill reduce dependence on government? • Will this farm bill improve crop prices? • Will this farm bill encourage free trade and competition? • Will this farm bill provide opportunities or maintain status quo? Allan Gray and Chris Hurt, Purdue University

  24. Contact Information • hurtc@purdue.edu • gray@purdue.edu • falwella@purdue.edu Allan Gray and Chris Hurt, Purdue University

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