ECON 337:Agricultural Marketing

Chad HartAssociate Professorchart@iastate.edu515-294-9911

Lee SchulzAssistant Professorlschulz@iastate.edu515-294-3356

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.