Funds Available for the Funds Available for the 2007 Farm Bill and the 2007 Farm Bill and the

Administration Proposal Administration Proposal

James W. RichardsonRegents Professor, Senior TAES Faculty Fellow

and Co-Director of AFPCDepartment of Agricultural Economics

Texas A&M University

2007 Texas Ag ForumAustin, TexasFebruary 23, 2007

Presentation OutlinePresentation Outline

• Farm Outlook • CBO Baseline Score for the Farm Bill

– How much money will there be for 2007 farm bill?

• Administration’s Farm Bill Proposal– Means Test for program benefits– Revenue Assurance to replace CCPs

FAPRI January 2007 Baseline Market Price, FAPRI January 2007 Baseline Market Price, Loan Rate, and Target Price for Corn, 1998-Loan Rate, and Target Price for Corn, 1998-

20112011

$1.75

$2.00

$2.25

$2.50

$2.75

$3.00

$3.25

$3.50

Market Price Loan Rate Target Price

FAPRI January 2007 Baseline Market Price, FAPRI January 2007 Baseline Market Price, Loan Rate, and Target Price for Sorghum, 1998-Loan Rate, and Target Price for Sorghum, 1998-

20112011

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

Market Price Loan Rate Target Price

FAPRI January 2007 Baseline Market Price, FAPRI January 2007 Baseline Market Price, Loan Rate, and Target Price for Wheat, 1998-Loan Rate, and Target Price for Wheat, 1998-

20112011

$2.40

$2.80

$3.20

$3.60

$4.00

$4.40

Market Price Loan Rate Target Price

FAPRI January 2007 Baseline Market Price, FAPRI January 2007 Baseline Market Price, Loan Rate, and Target Price for Cotton, 1998-Loan Rate, and Target Price for Cotton, 1998-

20112011

$0.25

$0.35

$0.45

$0.55

$0.65

$0.75

Market Price Loan Rate Target Price AWP

FAPRI January 2007 Baseline Market Price, FAPRI January 2007 Baseline Market Price, Loan Rate, and Target Price for Rice, 1998-Loan Rate, and Target Price for Rice, 1998-

20112011

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

Market Price Loan Rate Target Price AWP

FAPRI January 2007 Baseline Market Price, FAPRI January 2007 Baseline Market Price, Loan Rate, and Target Price for Peanuts, 1998-Loan Rate, and Target Price for Peanuts, 1998-

20112011

$0.10

$0.20

$0.30

$0.40

Market Price Loan Rate Target Price

CBO Baseline Score for 2007 BillCBO Baseline Score for 2007 Bill

• CBO prepares a March Baseline Score – 10 year cost estimate for the current farm

bill

• Rule is that the Baseline Score must assume a continuation of existing farm programs

• Some parts of the 2002 farm bill expire before the next 10 years– MILC program– Conservation Security Program (CSP)

• The net effect is to further cut the Budget Score

March 2006 CBO Baseline of March 2006 CBO Baseline of Government Payments to All Government Payments to All

Program Crops, 2007-2016 (Mil. $)Program Crops, 2007-2016 (Mil. $)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2007 2009 2011 2013 2015

LDPCCPDP

AFPC Projection of CBO March 2007 AFPC Projection of CBO March 2007 Baseline for Payments to All Program Baseline for Payments to All Program

Crops, 2007-2016 (Mil. $)Crops, 2007-2016 (Mil. $)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2007 2009 2011 2013 2015

LDPCCPDP

CBO ScoreCBO Score

• March CBO Baseline for 9 crops was $103.2 Bill.– Our update forecast of the Baseline score is $67.7 Bill.– Or a loss of $35.5 Bill.

• As a point of comparison how much was available to write the 2002 Farm Bill?

• Mr. Combest and Mr. Stenholm had a CBO score of $105 Bill. for the Title I crop programs

• Mr. Peterson will likely have about $68 Bill. for Title I and an expanded shopping list of new programs – Renewable fuel– Fruits and vegetable – Conservation more inclusive and extensive

Administration’s ProposalAdministration’s Proposal

• Increase direct payment rates• Lower loan rates• Lower payment limits ($110,000 each DP and

CCP and $140,000 LDP)• Means test ($200,000 Adj Gross Income or

AGI)• Replace CCP with National Revenue

Assurance• Increase conservation programs• Extend CRP • Request $5 billion more in budget

Representative Farm OutlookRepresentative Farm Outlook

Rice

Dairy

Wheat

Rice

Dairy

Dairy

Cattle

Cattle

CattleWheat

DairyCotton Cotton

Dairy

Dairy

Feed Grain

Cotton

RiceRice

Wheat

Wheat

Feed Grain

Feed Grain

Feed GrainFeed Grain

DairyCattle

Rice

DairyDairy

Dairy

Dairy

Feed GrainCotton

FeedGrain

Dairy

Dairy

Cattle

Cattle

Cattle

RiceCotton

Cotton

Cotton

Cattle

Cotton

Rice

Cotton

Dairy Rice

Cattle

FeedGrain

Cotton

Cotton

Cotton

Cattle

Cattle

Feed Grain

Feed Grain

CottonFeed Grain

Cattle

Wheat

Wheat

Cotton

Wheat

Cotton

Cotton

AGI Means Test for Farm Payments

• Analyzed 64 representative crop farms over 2008-2014 assuming continue 2002 farm bill

• 17 of 19 feedgrain farms lose payments – Average of $77,750 lost payments

• 8 of 10 wheat farms lose payments– Average of $33,830 lost payments

• 16 of 20 cotton farms lose payments– Average of $87,730 lost payments

• 4 of 15 rice farms lose payments– Average of $41,270 lost payments

‘The Bush administration proposal for tighter crop subsidy rules sporadically would deny benefits to average-size U.S. farms, and not just to the big operators targeted, a think tank at Texas A&M University said Wednesday.  The administration has proposed to deny crop subsidies to growers with an adjusted gross income above $200,000 a year.  USDA officials say about 38,000 people would lose subsidies.  "We found it's probably going to impact more people than we've been led to believe," said James Richardson, co-director of the Agriculture and Food Policy Center at Texas A&M.  Farm revenue fluctuates, so a stellar year could disqualify a family-size farm even when the trigger proposed by USDA is the average adjusted gross income over three years, Richardson said.  In a report, the think tank said "a farm could be eligible for payments one year and not the next year.“’  The Des Moines Register

Preliminary Look at the Preliminary Look at the Administration’s Proposal Administration’s Proposal

for RAfor RA• National Target Revenue calculated

NTR = (TP-DPrate)* (2002-06 Olympic Average Yield)

• Actual Target Revenue calculated ATR = Actual Yield * Max[Market Price,

Loan Rate]• Revenue Assurance Payment (RAP)

is paid if ATR < NTR • RAP paid per base acre is

RAP = (NTR – ATR) / (CCP Pymt Yield*0.85)

Comparison of Proposed Revenue Assuarnce to CCP in 2008 for Wheat $/acre

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 50 100 150 200 250 300

Pro

b

Wht NTR Wht ATR Wht RAP WHT CCP

P(RAP<0) = 86.2%P(CCP<0) = 76.8%

Comparison of Proposed Revenue Assuarnce to CCP in 2008 for Corn $/acre

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 100 200 300 400 500 600 700 800

Pro

b

Corn NTR Corn ATR Corn RAP Corn CCP

P(RAP<0) = 97.6%P(CCP<0) = 96.0%

Comparison of Proposed Revenue Assuarnce to CCP in 2008 for Soybean $/acre

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 100 200 300 400 500

Pro

b

SB NTR SB ATR SB RAP SB CCP

P(RAP<0) = 99.2%P(CCP<0) = 100%

Comparison of Proposed Revenue Assuarnce to CCP in 2008 for Cotton $/acre

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 100 200 300 400 500 600 700 800

Pro

b

CT NTR CT ATR CT RAP CT CCP

P(RAP<0) = 27.2%P(CCP<0) = 26.8%

Comparison of Proposed Revenue Assuarnce to CCP in 2008 for Rice $/acre

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 200 400 600 800 1000

Pro

b

Rice NTR Rice ATR Rice RAP Rice CCP

P(RAP<0) = 56.8%P(CCP<0) = 46.4%

Comparison of Proposed Revenue Assuarnce to CCP in 2008 for Peanut $/acre

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 200 400 600 800 1000

Pro

b

PN NTR PN ATR PN RAP PN CCP

P(RAP<0) = 50.4%P(CCP<0) = 55.0%

Administration's RA Proposal

• Does the Revenue Assurance proposal save money?

• Secretary claims $5 Bill. in the first 5 years

• Our estimates show only $1 Bill. savings in the first 5 years

• Savings over 9 years is $3 Bill.

Outlook on PolicyOutlook on Policy

• Outlook for grain farms best since Fall of 1995, cotton and rice still show red

• New farm bill is all about the CBO Budget Score and:– Fruits and vegetables will get subsidies of some kind – Renewable fuels research spending will come from

somewhere– Don’t discount conservation emphasis in next bill

• Caution: Doha is not Dead – Still working to get back to negotiations– Timing is critical if it is to affect 2007 farm bill– Do not dismiss WTO impacts on bill

• Cotton, corn, and level of payments challenges

• Our bottom line…– Very likely to have much the same programs in 2007 FB not

because that’s what everyone wants but ... because it may be the best safety net we can afford