Michele MarraProfessor

Department of Agricultural and Resource Economics

NCSU

October, November, 2008(With credit to Joe Outlaw, Texas A&M, Art Barnaby, Kansas State

U. and Carl Zulauf, Ohio State U.)

The Farm Bill that has passed, been vetoed, overridden, and been signed into law twice is now Public Law 110-246.

This law replaces the original law that contained only 14/15 of the whole Farm Bill.

So…it’s all official, finally, on June 20, 2008 and we can now begin to digest what’s in it.

The basic commodity programs remain, including direct and countercyclical payments, and loan programs.

Two new safety net features have been added: The ACRE program – an optional program The SURE program – a permanent, dedicated

disaster assistance program, also optional More funding for “working lands”

conservation programs. More funding for nutrition programs.

Crop commodity

Direct Payment

CCP Target Price Loan Rate

Corn $0.28/bu $2.63/bu (up $0.03) $1.95/bu

Soybeans $0.44/bu $5.80/bu for 09$6.00/bu for 2010+

$5.00/bu

Cotton $0.667/lb (new)

$0.7125/lb (down $0.01)

$0.52/lb

Wheat $0.52/bu $3.02 /bu for 09$4.17/bu for 2010+

$2.75/bu for 09$2.94/bu for 2010+

Grain Sorghum

$0.35/bu $2.57/bu for 09$2.63 /bu for 2010+

$1.95/bu

First Option: Business as usual. Farmers can choose to retain the full amount of the direct, and counter cyclical payments and loan programs.

Second Option: Average Crop Revenue Election(ACRE) program.

One-time choice for the life of the Farm Bill – can sign up before any crop year, but once signed in, you’re in for the life of the Bill.

To enroll, a grower must accept a 20% reduction in direct payments, a 30% reduction in the loan rate (totally irrelevant this year for most crops) and receive no CCP.

Revenue payments from a program tied to the national price and state-level production outcomes.

If you sign up for ACRE, you must sign up for all your acres and for all crops for the life of this Farm Bill.

The decision is complicated, but decision aids are available. See the following website:

http://www.card.iastate.edu/ag_risk_tools/acre/

Two triggers: If Actual State Revenue is below State ACRE

Guarantee and If your actual farm revenue is below your Farm

Acre Benchmark then You will get a payment

STATE ACRE Guarantee = 90%* 5- year Olympic State Avg. Yield * 2-year Natl. Average Marketing Year PriceRestricted to < 10% change/ year

Actual State Revenue =Actual State Planted Acre Yield * MAX [ Natl. Average Marketing Year Price OR 70% of the loan rate].

Farm ACRE Benchmark = Farm’s 5-yr. Olympic Avg. Yield *2-year Natl. Average Marketing Year Price + Crop Insurance Premium per acre

Actual Farm Revenue = Actual Farm’s Planted Acre Yield * MAX [Natl. Average Marketing Year Price OR 70% of the loan rate]

>

AND

>

THENFarm Payment = 0.833 (.85 in 2012) * Actual Planted or Considered Planted Acres * [Farm’s 5-year Olympic Average Yield/State’s 5-year Olympic Average Yield] * MIN[State ACRE Guarantee – Actual State Revenue) OR State Acre Guarantee * 25%]Note: All Yields are Planted Acre Yields

IF

Assume 500 soybean planted acres on the farm with a 500 acre soybean base.

Farm soybean yields for the past 5 years are: 42, 31,22, 28,26 Calculate Farm Olympic Average Yield: (26+31+28)/3 =28.33 State soybean yields for the past 5 years are: 27,32,21,30,34 Calculate State Olympic Average Yield: (27+32+30)/3=29.66 Calculate 2-yr. National Avg. Marketing Yr. Price:

(6.43+10.40)/2= $8.41 Calculate State Acre Guarantee: 0.9x29.66x$8.41 = $224.49 Calculate Farm Acre Benchmark: (28.33x$8.41)+ (5)=$243.26

Assume: 2009 Marketing Year soybean price = $9.00 NC average soybean yield = 24 bu./ac. Your farm’s soybean yield = 26 bu./ac. Your direct payment yield = 22 bu./ac.

Actual State Revenue = $9.00 x 24 = $216 Actual Farm Revenue = $9.00 x 26= $234 Is State Trigger Activated? $224.49 > $216 YES Is Farm Trigger Activated? $243.26 > $234 YES Payment is: 0.833(500 x (28.33/29.36) x

min[(224.49-216) or 224.49 x 0.25)] =0.833 x 500 x 0.96 x 8.49 = $3412.03

Compare to 20% of Direct Payment: $0.44 x .20 x 22 x 500 = $968

State Guarantee = $224.49 Farm Guarantee = $243.26

The total number of payment acres cannot exceed base acres on the farm.

Provisions for assigning yields, etc. by using yields from a “similar state.”

BUT… ACRE is NOT a substitute for crop insurance! It only pays up to 25% of the revenue guarantee,

while crop insurance pays up to 85-90% of the yield guarantee and 100% of the price guarantee and is based on only your farm’s performance.

It has been shown (by me and others) that state yields are much less variable than individual farm yields, so state trigger should activate less often.

Studies have shown that a payout occurs about 30% of the time (national average).

However, studies have shown that ACRE is more likely to benefit producers if: A state has higher yield variability

(Southeast, Mid-Atlantic) Crops with prices well above the loan rate States where yield does not impact national

price Crops with higher increases in yields in the

recent past

Go to the ACRE calculator on the WEB and run some scenarios

Model runs for North Carolina indicate that enrolling in ACRE would be profitable under most scenarios in the long run.

Wait a year to see what happens.

Agricultural Disaster Relief Trust Fund (for weather related disasters that occur before 10/1/2011. Provides funds for: Supplemental Revenue Assistance (SURE) Livestock Indemnity Payment Livestock Forage Disaster Emergency Assistance for Livestock,

Honey Bees, and Farm-Raised Fish Tree Assistance

No farm program payments to anyone whose average adjusted gross non-farm income for the previous 3 tax years is greater than $500,000.

No direct payments to anyone whose average adj. gross farm income for the previous 3 tax years is greater than $750,000.

Husband and wife generally can receive payments as separate individuals, but 3 entity rule is gone.

Retains payment limits per person on individual parts of the commodity programs: $40,000 limit for direct payments, $65,000 limit on CCP AND ACRE.

NO personal limit on marketing loan gains or LDPs.

• Additional $4 billion to Title II funding

• Movement away from land-retirement (CRP) towards working-land and easements (CSP, EQIP)

• $2.5 billion redirected from CRP to working-land programs

• Special assistance for beginning, limited resource and socially disadvantaged farmers and ranchers

2002 FARM BILL 2008 FARM BILL• Reduce to 32 million

acres by 2010 via contract expirations

• Cropping history previous 4 of 6 years

• Alfalfa, multi-year grasses, legumes in annual crop rotation meet requirement

• Early-out provision at discretion of Sec. of Ag.

• Acreage cap 39.2 million acres, 34 million acres now enrolled

• Cropping history previous 4 of 6 years

• No early out

• Greater flexibility with mid-contract mgmt

• Harvesting (includes biomass), prescribed and routine grazing, wind turbines

• Payment reductions apply

• Adds cost share for thinning stands

• Farmable Wetland Program expanded

Conservation Reserve Program (CRP)

2002 FARM BILL 2008 FARM BILL• New name, new game

• Acreage-based• 12.7 million acres per

year • 2009-2017

• No tiered participation

• 5-yr contracts ; renew once for 5 more years

• Max $200k for any 5 yrs

• $18 per acre is target

• Conservation Security

• No new funding

• Spending-based enrollment

• $6 billion from 2002 – 2011

• Participation in 3 tiers

• Rental rates, contract length, max payments tier-dependent

• 5-10 years contracts

• Max payment $225k

• Address one resource concern on ENTIRE operation

• Address at least one more resource by end of contract

• Simplified payments for

• Installation• Maintenance• Crop rotations• Others

• Meet minimum level of treatment for resource concern on PART of operation

• Still paid on whole operation

• Payment structure based on tiered-participation

• Based on type and cost of practice

• Enhancement component for “exceptional” conservation effort

2002 FARM BILL 2008 FARM BILL

“Conservation planning” is now an approved and eligible conservation activity!

…for the Environmental Quality Incentives Program as well…

Conservation Stewardship Program (CSP)

2002 FARM BILL 2008 FARM BILL• Updated purpose

includes forest management, energy conservation, organic production and fuels management

• Authorized spending increases from 2008 to 2012

• $1.2 billion for 2008• $1.75 billion by 2012

• Purpose: Improve water quality and conservation, reduce soil erosion from crop- and forestland, improve rangeland

• Allocated $1.0 billion in 2007

2002 FARM BILL 2008 FARM BILL

• 90% cost share ALSO for socially disadvantaged farmers

• 30% in advance to purchase materials or contracting

• Payment limitation $300k over 6-year period

• Secretary of Ag. can raise to $450k for special projects

• 90% cost share for beginning and limited resource farmers

• Payment limitation $450k over 6-year period

• Priority to improvement of established conservation practices and systems

• Priority to water conservation and irrigation efficiency systems

• Organic Production• Payment limitations apply• Available for transition to organic

production

• Continuous CRP signup opportunities• General signup CRP not likely in next 2 yrs

• Opportunity to participate in CSP, EQIP

• Livestock waste operations can take advantage of additional emphasis on water-related resource concerns.

• Opportunities for organic producers

• EQIP and transitioning out of CRP

• Opportunities for beginning, limited resource and socially disadvantaged farmers

• Other farm bill programs• Conservation of Private Grazing Land

(CPGL)• Grassland Reserve Program(GRP) • Wetland Reserve Program (WRP)• Wildlife Habitat Incentives Program

(WHIP)• Farmland Preservation Program

• State programs - CREP• Private and Nonprofit Organizations

Energy title has switched gears to focus on “advanced biofuels”.

“Advanced biofuels” do not include any crop that falls under the commodity programs (e.g. corn, soybeans, wheat, cotton or cottonseed, etc.)

They do include switchgrass, corn stover, wood chips, etc. The so-called cellulosic ethanol producers.

The Department of Energy has set the goal of bringing down the cost of producing “advanced biofuels” to $0.82/gal. by 2011.

Big plan, but can they do it? Currently, the cost of producing

“advanced biofuels” is around $1.30 per gallon.

Their goal is almost a 40% reduction in 3 years.