Download - Outlook, Farm Bill, and Crop Insurance

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Extension and Outreach/Department of Economics

Outlook, Farm Bill, and Crop Insurance

ISUEO Farm Management In-ServiceAmes, IowaMay 8, 2012

Chad HartAssistant Professor/Grain Markets Specialist

[email protected]

Extension and Outreach/Department of Economics

U.S. Corn Supply and Use2008 2009 2010 2011 2012

Area Planted (mil. acres) 86.0 86.4 88.2 91.9 95.9

Yield (bu./acre) 153.9 164.7 152.8 147.2 164.0

Production (mil. bu.) 12,092 13,092 12,447 12,358 14,558

Beg. Stocks (mil. bu.) 1,624 1,673 1,708 1,128 801

Imports (mil. bu.) 14 8 28 20 15

Total Supply (mil. bu.) 13,729 14,774 14,182 13,506 15,374

Feed & Residual (mil. bu.) 5,182 5,125 4,793 4,600 5,200

Ethanol (mil. bu.) 3,709 4,591 5,021 5,000 4,950

Food, Seed, & Other (mil. bu.) 1,316 1,370 1,407 1,405 1,420

Exports (mil. bu.) 1,849 1,980 1,835 1,700 1,900

Total Use (mil. bu.) 12,056 13,066 13,055 12,705 13,470

Ending Stocks (mil. bu.) 1,673 1,708 1,128 801 1,616

Season-Average Price ($/bu.) 4.06 3.55 5.18 6.20 5.00

Source: USDA-WAOB, 2012 Unofficial Projections

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Extension and Outreach/Department of Economics

U.S. Soybean Supply and Use2008 2009 2010 2011 2012

Area Planted (mil. acres) 75.7 77.5 77.4 75.0 73.9

Yield (bu./acre) 39.7 44.0 43.5 41.5 43.9

Production (mil. bu.) 2,967 3,359 3,329 3,056 3,202

Beg. Stocks (mil. bu.) 205 138 151 215 250

Imports (mil. bu.) 13 15 14 15 15

Total Supply (mil. bu.) 3,185 3,512 3,495 3,286 3,467

Crush (mil. bu.) 1,662 1,752 1,648 1,630 1,660

Seed & Residual (mil. bu.) 106 110 130 116 126

Exports (mil. bu.) 1,279 1,499 1,501 1,290 1,550

Total Use (mil. bu.) 3,047 3,361 3,280 3,036 3,335

Ending Stocks (mil. bu.) 138 151 215 250 205

Season-Average Price ($/bu.) 9.97 9.59 11.30 12.25 11.50

Source: USDA-WAOB, 2012 Unofficial Projections

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Extension and Outreach/Department of Economics

Budget Projections by TitleTitle 2013-2022 Budget Change ($ million)

Title I – Commodity -17,639

Title II – Conservation -6,374

Title III – Trade 0

Title IV – Nutrition -4,024

Title V – Credit 0

Title VI – Rural Development 0

Title VII – Research 645

Title VIII – Forestry 9

Title IX – Energy 0

Title X – Horticulture 359

Title XI – Crop Insurance 2,748

Title XII – Miscellaneous -466

Total -24,747

Extension and Outreach/Department of Economics

Budget Projections by CropCrop 2013-2022 Budget Change ($ million)

Corn -5,752

Soybean 1,459

Wheat -6,409

Cotton -6,077

Rice -2,842

Sorghum -505

Barley -615

Oats -11

Peanuts -314

Dairy -59

Extension and Outreach/Department of Economics

Commodity TitleChanges 2013-2022 Budget Change ($ million)

End Direct Payments -44,622

End Countercyclical Payments -1,008

End ACRE -4,615

Adding Popcorn 91

Ag. Risk Coverage 29,240

Marketing Loans 35

Sugar Program 0

Dairy Program -59

Disaster Assistance 3,297

AGI Limits -95

Implementation 100

Total -17,639

Extension and Outreach/Department of Economics

2012 Senate ProposalEliminates direct payments, countercyclical

payments, and the ACRE program

Keeps marketing loan program

Creates the Ag. Risk Coverage program

Extension and Outreach/Department of Economics

ARC instead of ACRERevenue-based support program

Farmer chooses county or farm-based guarantee

Choice determines the % of land covered by the program

Extension and Outreach/Department of Economics

ARC Guarantees Based on 5-year Olympic averages of price and yield

Exception: farm-based price is 10-year average

Price is national season-average price

Yield is farm yield for farm-based coverage and county yield for county-based coverage

Yield is per planted (and prevented planted) acre

Guarantee = 89% * Ave. Price * Ave. Yield

Extension and Outreach/Department of Economics

ARC Set-up for Corn in 2013Yield per Planted Acre

Year Farm(bu./acre)

County(bu./acre)

Season-Average Price($/bu.)

2003 2.42

2004 2.06

2005 2.00

2006 3.04

2007 4.20

2008 160 160 4.06

2009 175 175 3.55

2010 164 164 5.18

2011 163 163 6.20

2012 165 165 5.00

Olympic Average 164 164 4.75

10-year average3.77

Extension and Outreach/Department of Economics

ARC Guarantees Benchmark Revenue =

$779.00/acre = 164 bu/acre * $4.75/bu. for county$618.28/acre = 164 bu/acre * $3.77/bu. for farm

In this case, the guarantee equals89% * $779.00/acre = $693.31/acre for

county89% * $618.28/acre = $550.27/acre for farm

Payments are triggered when actual revenues fall below these levels

Extension and Outreach/Department of Economics

ARC Actual RevenuesPrice is set at the higher of the crop loan

rate or the mid-season price

Loan rate for corn is $1.95/bu.

Mid-season price is the average price over the 1st 5 months of the marketing year

Extension and Outreach/Department of Economics

ARC Actual RevenuesYield is the actual yield per planted acre

Farm-based option uses actual farm yield

County-based option uses actual county yield

Actual Revenue = Price * Yield

Extension and Outreach/Department of Economics

ARC Payment RatePayment Rate = Minimum of

10% of Benchmark Revenue or

ARC Actual Revenue – ARC Guarantee

The maximum payment rate is 10% of Benchmark RevenueIn my example, that’s $77.90/acre for the county-

lever and $61.83/acre for the farm-level

Extension and Outreach/Department of Economics

ARC AcreageProgram is based on planted and prevented

planted acres, but doesn’t pay on all of them

Acreage limit = average of 2009-12 plantings (and prevented plantings)

Treats planted and prevented planted acres differently

Extension and Outreach/Department of Economics

ARC AcreageFor farm-based option, you get paid on 65%

of your planted acres and 45% of your prevented planting acres

For county-based option, you get paid on 80% of your planted acres and 45% of your prevented planting acres

Extension and Outreach/Department of Economics

ARC Payout Graph

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50

100

150

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2 3 4 5 6 7 8

Price ($ per bu.)

Yie

ld (

bu

./a

cre

)

ARC pays out

No ARC payments

Extension and Outreach/Department of Economics

Factors to ConsiderFarm-based guarantee could be higher or

lower than county-based guarantee

Farm-based option is generally more likely to pay out, but you get payments on 15% less acres

County-based option might not trigger when farm has a loss

Extension and Outreach/Department of Economics

Crop Insurance TitleChanges 2013-2022 Budget Change ($ million)

Supplemental Coverage Option 682

CAT Rerating -437

Enterprise Units 506

APH Adjustment 855

Stacked IP for Cotton 3,224

Peanut Rev. Insurance 239

Implementation 85

Index-Based Weather Ins. 50

Beginning Farmer Provisions 192

Ag. Mng. Assistance 6

Crop Prod. on Native Sod -167

Participation Effects from ARC -2,487

Total 2,748

Extension and Outreach/Department of Economics

Crop InsuranceSupplemental Coverage Option

Can purchase area-based policy to cover deductible part of individual-based policy

Payments triggered when area suffers 10% lossIf you participate in ARC, you face a deductible

of 21% for this optionWhat is the deductible if you do not participate in

ARC?70% premium subsidy for actuarially fair

premium

Extension and Outreach/Department of Economics

Crop InsuranceEnterprise discounts are now permanentSeparate enterprise units for irrigated and

nonirrigated landChange t-yield percentage from 60% to 70%Any renegotiation of the Standard

Reinsurance Agreement shall be budget neutral

Extension and Outreach/Department of Economics

Crop InsuranceAllows private insurance company pilot of

index-based weather insuranceAllows premium subsidy of 60% or less

Waives CAT fee, adds 10% to premium subsidy rates, and sets yield bound at 80% of the t-yield for beginning farmers

Extension and Outreach/Department of Economics

Conservation TitleChanges 2013-2022 Budget Change ($ million)

CRP -3,795

CSP -1,987

EQIP -964

Cons. Easements 809

Reg. Cons. Incentives Prog. -86

Other Cons. Programs 190

Funding 100

Repeal of WHIP -641

Total -6,374

Extension and Outreach/Department of Economics

Not the Last Word on the 2012 Farm Bill

Senate proposal is just the start of the process

There will likely be several changes/modificationsARC may or may not be in the final farm bill

But now we know the starting point for negotiations