Overview of the 2012 Farm Bill

Joe L. Outlaw Professor & Extension Economist

Co-Director, AFPC

Managing Agricultural Risks Under the 2012 Farm Bill 2012 AM/PIC Meeting

Charleston, South Carolina

July 18, 2012

Presentation Outline

• Background

• Farm Bill Time Table

• Ramifications for Farmers & Ranchers

• Major Concerns

• Extension’s Role in Providing Educational Programs for Producers

• Conclusions

Farm Policy

Background

• Urgency For New Farm Bill

– Current bill expires September 30th of this year

– Better to Decide on How to Cut Ag Rather than Some Other Committee

– Possibility of Flip in Control of the Senate

– Presidential Elections

0

20,000

40,000

60,000

80,000

100,000

120,000

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

XVTradeandTaxProvisions

XIVMiscellaneous6/

XIIICommodityFutures

XIICropInsuranceandDisasterAssistance

XILivestock

XHor cultureandOrganicAgriculture

IXEnergy

VIIIForestry

VIIResearchandRelatedMa ers

VIRuralDevelopment

VCredit

IVNutri on

IIITrade(CCC)

IIConserva on

ICommodityPrograms(CCC)

Mandatory Spending Baseline for the 2008 Farm Bill Programs and Provisions,

by Title, ($M), FY 2013-22

Source: CBO March 2012 Baseline

Total Payments ($M), 2013-22

Source: CBO March 2012 Baseline

0

5,000

10,000

15,000

20,000

25,000

Corn

Soybeans

Wheat

UplandCo

on

Rice

Peanuts

Sorghum

Barley

Oats

OtherOilseeds

Wool

Mohair

Honey

DryPeas

Lenls

Stove Piping is an issue – want our share of the money after any cuts

Baseline Payments ($M) and Planted Acres, Major Program Crops, 2013-22

0

5,000

10,000

15,000

20,000

25,000

Payments

89.1 Mil Ac

76.4 Mil Ac

54.5 Mil Ac

11.25 Mil Ac

2.97 Mil Ac

1.38 Mil Ac

For My Sanity -- It’s About the Safety Net –

Not Who Gets How Much!!

Farm Bill Time Table

Farm Bill Time Table

• A chance it is taken up in the House soon – Big question of whether it survives there

• A better chance it never goes to the House floor – I have been advised to look at the recently

passed transportation bill

• For more than a year I have thought it would be 2013 and still do

Ramifications for Farmers and Ranchers

• Need to go through a quick review of what is in the two bills

• Just so you know what to look for:

– The bills are similar in some respects but quite a bit different generally

– The Senate bill puts all crops other than cotton in a shallow loss type of safety net program with 2 choices of yields to use OR a producer can opt out

– The House bill allows producers to choose between a shallow loss or price based safety net

Title Description CBO Baseline Change Senate Change House

I Commodity Programs 62,944 -19,428 -23,584

II Conservation 64,067 -6,374 -6,062

III Trade (CCC) 3,411 0 0

IV Nutrition 772,109 -4,000 -16,075

V Credit -2,665 0 0

VI Rural Development 25 115 105

VII Research and Related 214 681 546

VIII Forestry 9 9 4

IX Energy 750 780 0

X Horticulture and Organic Ag

1,080 360 428

XI Livestock 0

XII Crop Insurance 90,867 5,036 9,524

XIII Commodity Futures 0

XIV Miscellaneous 0 -319 50

XV Trade & Tax 0

Provisions Senate Agriculture Risk Coverage (ARC) Provisions

House Revenue Loss Coverage (RLC) Provisions

Revenue guarantee Starts at 89% of previous 5-year moving Olympic average revenue for the crop

Starts at 85% of previous 5-year moving Olympic average revenue for the crop

County Level or Individual Level Coverage

One time irrevocable selection of either county level or individual level

County level

Payment acres 65% of planted acres not to exceed the average total acres planted or prevented from being planted to covered commodities and upland cotton on the farm for the 2009 – 2012 crop years if individual level coverage is selected or 80% for county level coverage

85% of planted acres and 30% of prevented planted acres not to exceed base acres on the farm (upland cotton base acres are included in total farm base acres) (payment factor of 85% is applied to planted acres before checking whole farm base cap)

Payment band or range 10% (89% to 79%) 10% (85% to 75%)

Actual revenue Calculated using the average price during the first 5 months of the marketing year and actual yields

Calculated using the average price during the first 5 months of the marketing year and actual yields

Mandatory or Optional Producer has the option to opt out of ARC and select SCO with a wider coverage level

Producer has the option to select RLC or price loss coverage (PLC)

Transitional Yields Used to Replace Low Yields in Calculating Revenue Guarantee

Can replace low yields with 60% of transitional yields in 2012 or prior years and 70% in 2013 or any subsequent years

Can replace any low yield in revenue calculations with 70% of the transitional yield

Provisions Senate Agriculture Risk Coverage (ARC) Provisions

House Revenue Loss Coverage (RLC) Provisions

Reference Prices Used to Replace Low Prices in Calculating Revenue Guarantee

Only applicable for rice and peanuts Long Grain Rice - $13.00/cwt Medium Grain Rice - $13.00/cwt Peanuts - $530/ton

Wheat - $5.50/bu Corn - $3.70/bu Grain Sorghum - $3.95/bu Barley - $4.95/bu Oats - $2.40/bu Long Grain Rice - $14.00/cwt Medium Grain Rice - $14.00/cwt Soybeans - $8.40/bu Other Oilseeds - $20.15/bu Peanuts - $535/ton Dry Peas - $11.00/cwt Lentils - $19.97/cwt Small Chickpeas - $19.04/cwt Large Chickpeas - $21.54/cwt

Payment Limit $50,000, peanuts with a separate limit

$125,000, peanuts with a separate limit

Change actively engaged

Yes, all but one have to provide active management

n/a

AGI Limitation $750,000 $950,000

Reduce crop insurance subsidy if AGI > 750,000

Yes, by 15% n/a

Provisions House Price Loss Coverage (PLC) Program

Payment Acres 85% of planted acres and 30% of prevented planted acres not to exceed base acres on the farm (upland cotton base acres are included in total farm base acres) (payment factor of 85% is applied to planted acres before checking whole farm base cap)

Reference Prices Wheat - $5.50/bu Corn - $3.70/bu Grain Sorghum - $3.95/bu Barley - $4.95/bu Oats - $2.40/bu Long Grain Rice - $14.00/cwt Medium Grain Rice - $14.00/cwt Soybeans - $8.40/bu Other Oilseeds - $20.15/bu Peanuts - $535/ton Dry Peas - $11.00/cwt Lentils - $19.97/cwt Small Chickpeas - $19.04/cwt Large Chickpeas - $21.54/cwt

Price Trigger If the average price during the first 5 months of the marketing year falls below the reference price for the commodity

Payment Yields CCP yields from the 2008 Farm Bill or establishes a methodology for producers of oilseeds without a CCP yield. Producer option to update payment yields to 90% of the average of the yield per planted acre for the crop for the 2008 to 2012 crop years, excluding any crop year in which the acreage planted was zero.

Payment Limitation $125,000, peanuts with a separate limit

AGI Limitation $950,000

Provisions Senate SCO and STAX House SCO and STAX

SCO Coverage Producer has the option of purchasing on an individual yield and loss basis or an area yield and loss basis or an individual yield and loss basis, supplemented with coverage based on an area yield and loss basis to cover all or a part of the deductible under the individual yield and loss policy, or a margin basis alone or in combination with—individual yield and loss coverage; or area yield and loss coverage

Producer has the option of purchasing additional coverage based on an individual yield and loss basis or an area yield and loss basis or an individual yield and loss basis, supplemented with coverage based on an area yield and loss basis to cover all or a part of the deductible under the individual yield and loss policy

SCO Band If an ARC participant, coverage from individual producer buyup insurance coverage level up to 79%. If producer opts out of ARC, then from individual producer insurance coverage level to 90%.

If in PLC, from individual producer insurance coverage level up to 90%. Not available if in RLC.

SCO Premium Subsidy

70% 70%

STAX Coverage Band

Producer elects coverage for revenue loss of not less than 10 percent and not more than 30 percent of expected county revenue, specified in increments of 5 percent.

Producer elects coverage for revenue loss of not less than 10 percent and not more than 30 percent of expected county revenue, specified in increments of 5 percent.

STAX Reference Price

None $0.6861/lb

STAX Premium Subsidy

80% 80%

Conservation Provisions

Senate House

Spending Cut $6 billion $6 billon

Consolidates Programs 23 programs combined into four fundamental program functions

23 programs to 13

CRP 25 million acre CAP 25 million acre CAP

Working Lands EQIP, CSP, Easements EQIP, CSP, Easements

Conservation Security Program

Enrollment limited to 10.348 million acres/year

Enrollment limited to 9 million acres/year

AFPC Representative Farms

Comparison of FAPRI Baseline Prices and Prices Used in the Declining Price Scenario

Results Indicating the Representative Farm’s Preference for Opting Out of ARC for a Larger SCO

Payment Band or Remaining in ARC

All 64 Representative Farm’s Preferred Title I Safety Net Option of the Senate Individual and County ARC and the House RLC and PLC

Alternatives.

Evolution of Dairy Policy

• Originally “Foundation for the Future”

• Then “Dairy Security Act of 2011”

• And Now “Modified Dairy Security Act”

• There could be more changes before it is over

Summary of Results for CA1710

Major Concerns

• Regardless of how conference negotiations go there will be less of a safety net for producers

• There will be Choices that Producers will need to make

– Some hate and some embrace

27

0

50

100

150

200

250

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

Mill

ion

s

Net Insured Acres, 1975 to 2009(Ten Major Crops)

William J. Murphy, Administrator

Risk Management Agency

Program Growth

William J. Murphy, Administrator

Risk Management Agency 28

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

(Bil

lio

n)

Liability by Plan Type

Other Group Revenue APH

•As of 11-22-11

DECEMBER COTTON

Feb 1-Feb 28 Oct 1-Oct31

(cents/unit) (cents/unit) ($/unit)

2000 61.35 63.35 0.02

2001 58.63 31.39 -0.27

2002 42.18 44.51 0.02

2003 59.62 74.43 0.15

2004 66.75 46.57 -0.20

2005 51.15 54.40 0.03

2006 60.38 49.38 -0.11

2007 58.00 64.01 0.06

2008 79.18 50.57 -0.29

2009 52.25 65.63 0.13

2010 72.39 112.33 0.40

2011 123.01 101.05 -0.22 Years Price Drops

30 Year Average 65.68 64.70 -0.0098 17

20 Year Average 67.04 64.61 -0.0243 12

10 Year Average 66.49 66.29 -0.0020 4

Extension’s Role in Providing Educational Programs for Producers

• Regardless of when bill is finished there will be a big shift from commodity program tools to manage risk to insurance tools

– Insurance tools do not have floors

• Not a problem… just different than producers are used to

• Major education role for Extension

Potential Deal Breakers

• Dairy Provisions

• CHOICE in crop safety net

• Payment limitations on insurance subsidies

• If Tea Party House Members insist on Large SNAP cuts

• Many Many more…

Conclusions

• In the policy world, you are going to hear the term: producers choice – a lot

• The process now will likely be an even bigger mess

• In the end, I expect a 2013 Farm Bill – but they have made a lot more progress than I thought they would so – maybe this year

• For this year, no change in policy but lots of questions for next year…

Thanks!!!

Joe Outlaw

joutlaw@tamu.edu

979-845-5913

www.afpc.tamu.edu