ECON 337: Agricultural Marketing Chad Hart Associate Professor [email protected] 515-294-9911 Lee Schulz Assistant Professor [email protected] 515-294-3356
ECON 337:Agricultural Marketing
Chad HartAssociate [email protected]
Lee SchulzAssistant [email protected]
Old vs. New Farm Bill Direct Payments (DP) Countercyclical
Payments (CCP) Marketing Loans (LDP) Revenue
Countercyclical Payments (ACRE)
Countercyclical Payments (PLC)
Marketing Loans (LDP) Revenue
Countercyclical Payments (ARC)
New programs, but they have strong similarities to previous programs
What Stayed the Same?
Loan RatesSet by lawCorn $1.95Wheat $2.94Soybean $5.00Sorghum $1.95Barley $1.95Oats $1.39
Two WavesFirst wave: Choice on base acreage and
yield updatingDue February 27
Second wave: Choice on farm bill programsDue March 31But actually, I will argue the deadline is March 15
Base AcresKeep current base acres or do a one-time
“reallocation” of base acresReallocation allowed to covered
commodities planted between 2009 and 2012
Reallocation in proportion to the ratio of 4-yr average plantings/prevented plantings
Total number of base acres limited to total of existing base acres
Payment YieldsKeep current CCP payment yield or do a
one-time “update” of payment yield on a commodity-by-commodity basis
Update: 90% of 2008-2012 yield per planted acre on the farm
If the farm yield is below 75% of the 2008-2012 average county yield, then the farm yield is replaced by 75% of the 2008-2012 average county yield
Payment AcresFor PLC and ARC at the county level, 85%
of base acres
For ARC at the individual level, 65% of base acres
Producer ChoiceHave one-time choice between:
PLC or ARC (can pick by commodity)If ARC is chosen, pick between county and
individual coverageIf individual coverage is chosen, must be taken for
all covered commodities on the farm2014-2018 crop years
Reference PricesReference Prices
Corn $3.70Wheat
$5.50Soybean $8.40Sorghum $3.95Barley
$4.95Oats $2.40
Old Target PricesCorn $2.63Wheat
$4.17Soybean $6.00Sorghum $2.63Barley
$2.63Oats $1.79
PLC instead of CCPPrice-based support program
Reference prices establish targets
Works like CCP
Payment rate = Max(0, Reference price – Max(MYA price, Loan rate))
Payment = Payment rate * Payment yield * Payment acres
PLC: Corn Payment Potential
Notes: PLC payments are made on 85% of base acres.
Marketing Year Price ($/bu)
PLC Payment Rate ($/bu)
PLC Payment ($/base acre)
$3.10 $0.60 $76.50$3.20 $0.50 $63.75$3.30 $0.40 $51.00$3.40 $0.30 $38.25$3.50 $0.20 $25.50$3.60 $0.10 $12.75$3.70 $0.00 $0.00
Reference Price = $3.70 per bushelPayment Yield = 150 bushels per acre
PLC vs. CCP and DP
ARC instead of ACRERevenue-based support program
Revenues based on 5-year Olympic average yields and prices
Yields and prices have cups (County T-yields and reference prices)
Triggers at county or individual farm level, instead of state level
ARC Payment RatePayment rate = Max(0,
Min(10% of Benchmark revenue,Actual crop revenue – ARC guarantee))
So the basic payment structure is the same as it was under ACRE
ARC-CO: 2014 Corn Revenue Guarantee
Notes: Revenue Guarantee equals 86% of Benchmark.
Year Yield MYA Price ARC Price2009 157.0 $3.55 $3.702010 186.0 $5.18 $5.182011 187.0 $6.22 $6.222012 163.0 $6.89 $6.892013 156.0 $4.46 $4.46
Oly. Ave. 168.7 $5.29Benchmark Revenue = $892.42 per acreARC Revenue Guarantee = $767.48 per acre
Revenue ProgramsARC-County ARC-Individual
Benchmark revenue
5-yr OA county yield * 5-yr OA MYA price
Sum across crops of [5-yr OA (farm yield * MYA price) *crop acreage]
Actual crop revenue
County yield * Max(MYA price or loan rate)
Sum across crops of [Farm production * Max(MYA price or loan rate)] / Total planted acres of all covered crops
Revenue guarantee
86% of benchmark 86% of benchmark
Think of ARC-County as crop-by-cropThink of ARC-Individual as whole farm
Conservation Conservation Reserve Program
27.5 million acres in 2014 26 million acres in 2015 25 million acres in 2016 24 million acres in 2017 and 2018 Grassland enrollment capped at 2 million
acres
Supplemental Coverage Option (SCO)An additional policy to cover “shallow losses”Shallow loss = part of the deductible on the
producer’s underlying crop insurance policySCO has a county-level payment triggerIndemnities are paid when the county
experiences losses greater than 14%Premium subsidy: 65%Starts in 2015Can’t have ARC and SCO together
RPRPHPE
YP
SCO
Supplemental Coverage Option (SCO)
Three ChoicesPLC + SCO
Price protection with top-up county-level insurance protection
ARC-CountyCounty-level revenue protection based on historical
averagesARC-Individual
Farm-level revenue protection based on historical averages
Choice holds for 2014-2018 crop years
Neither pay
Both pay
PLC pays, ARC does not
ARC pays, PLC does not
Class web site:http://www.econ.iastate.edu/~chart/Classes/econ337/Spring2015/
Lab in Heady 68.See you there.