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![Page 1: The U.S. Farm Bill: More than just the farm Kent Olson Department of Applied Economics University of Minnesota Minnesota Economic Association October 26,](https://reader033.fdocuments.us/reader033/viewer/2022051401/56649cdd5503460f949a8647/html5/thumbnails/1.jpg)
The U.S. Farm Bill: More than just the farm
Kent OlsonDepartment of Applied Economics
University of Minnesota
Minnesota Economic AssociationOctober 26, 2012
![Page 2: The U.S. Farm Bill: More than just the farm Kent Olson Department of Applied Economics University of Minnesota Minnesota Economic Association October 26,](https://reader033.fdocuments.us/reader033/viewer/2022051401/56649cdd5503460f949a8647/html5/thumbnails/2.jpg)
Current Crop Commodity Policy
1. Direct payments (DP)
2a. Counter-Cyclical Payments (CCP)• Based on target prices
OR
2b. Average Crop Revenue Election (ACRE)
3. Loan rates
& Loan Deficiency payments (LDP)
![Page 3: The U.S. Farm Bill: More than just the farm Kent Olson Department of Applied Economics University of Minnesota Minnesota Economic Association October 26,](https://reader033.fdocuments.us/reader033/viewer/2022051401/56649cdd5503460f949a8647/html5/thumbnails/3.jpg)
Corn example of CounterCyclical
Target price per bushel = $2.63
Target price – DP = $2.35
Loan rate = $1.95
Direct Payment = $0.28
Potential CCP = $0.40
Potential LDP
If U.S. m
arket price > $2.35,
farmers only receive $0.28
(times 83.3% of base acres * D
P yield).
![Page 4: The U.S. Farm Bill: More than just the farm Kent Olson Department of Applied Economics University of Minnesota Minnesota Economic Association October 26,](https://reader033.fdocuments.us/reader033/viewer/2022051401/56649cdd5503460f949a8647/html5/thumbnails/4.jpg)
The ACRE payment
• An ACRE payment on a farm is made if:– (1) ACRE program guarantee for the crop is
greater than actual State revenue for the crop– AND– (2) farm ACRE benchmark revenue is greater than
actual farm revenue for the crop
• Farm payment is based on the loss in revenue at the State level and the farm’s planted acreage—adjusted for relative yields
![Page 5: The U.S. Farm Bill: More than just the farm Kent Olson Department of Applied Economics University of Minnesota Minnesota Economic Association October 26,](https://reader033.fdocuments.us/reader033/viewer/2022051401/56649cdd5503460f949a8647/html5/thumbnails/5.jpg)
ACRE: State revenue & guarantee
• Actual state revenue for a crop is the State yield per planted acre from NASS times the national average market price – National average market price is the higher of the 12-month
marketing year price or 70% of the marketing assistance loan rate
• State guarantee is equal to 90% of the benchmark state yield (5 year Olympic NASS average) times the ACRE program guarantee price – ACRE program guarantee price is the simple average of 2
previous national average market prices– For the 2010-2012 crop years, the ACRE state revenue
guarantee for a crop shall not decrease or increase more than 10 percent from the guarantee for the preceding crop year.
![Page 6: The U.S. Farm Bill: More than just the farm Kent Olson Department of Applied Economics University of Minnesota Minnesota Economic Association October 26,](https://reader033.fdocuments.us/reader033/viewer/2022051401/56649cdd5503460f949a8647/html5/thumbnails/6.jpg)
ACRE: farm revenue & benchmark
• Actual farm revenue is the actual yield for the crop on the farm times the national average market price for the crop
• Farm ACRE benchmark revenue is:The most recent 5 year Olympic average crop yield
average for the farm times the ACRE program guarantee price for the crop
Plus The crop insurance premium per acre paid by the farm
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ACRE PaymentIf the two triggers are met, the ACRE payment amount is:• The lesser of:
– The difference between the ACRE State program guarantee for the crop and the actual State revenue from the crop
– OR– 25% of the ACRE state program guarantee for the crop
• Multiplied by the payment fraction (.833 for 2009-2011 and 0.85 for 2012)
• Multiplied by the planted or considered planted acres of the crop on that farm
• Multiplied by the quotient: obtained by dividing the Olympic average for the crop on the
producers farm for the most recent 5 years by the benchmark State yield for the crop (the Olympic average of the most recent 5 years of State yields)
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Still with me?
![Page 9: The U.S. Farm Bill: More than just the farm Kent Olson Department of Applied Economics University of Minnesota Minnesota Economic Association October 26,](https://reader033.fdocuments.us/reader033/viewer/2022051401/56649cdd5503460f949a8647/html5/thumbnails/9.jpg)
State ACRE Guarantee
Actual State Revenue
Actual Farm Revenue
Farm ACRE Benchmark
>
>
THEN, and only then:
ACRE Farm Payment
Summary of ACRE payment triggers
AND
IF
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Estimating the impact of CCP vs ACRE
• Program rules and formulae• Actual farm data for acreages plus
yield trends and error distributions - 11 example farms in southern Minnesota - 6 example farms in northwest Minnesota
• Historical prices for distributions• Price projections for expected means
• Food and Agricultural Policy Research Institute (FAPRI)• @RISK within Excel
![Page 11: The U.S. Farm Bill: More than just the farm Kent Olson Department of Applied Economics University of Minnesota Minnesota Economic Association October 26,](https://reader033.fdocuments.us/reader033/viewer/2022051401/56649cdd5503460f949a8647/html5/thumbnails/11.jpg)
Index of Total Government Payments (TGP), if ACRE guarantee is “high”
and market prices drop …
0
50
100
150
200
250
300
TG
P I
nd
ex
Co
1
Co
2
Co
3
Fa
1
Fa
2
Go
1
Go
2
Go
3
Pi1
Pi2
Pi3
Pe
1
Pe
2
Pe
3
Po
1
Po
2
Po
3
Example Farms
CP ACRE
6 wheat-SB farms11 corn-SB farms
F1
Pi3 index = 533
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Index of Total Government Payments (TGP), if ACRE guarantee is high and market prices remain high …
0
20
40
60
80
100
120
140
160
TG
P I
nd
ex
Co
1
Co
2
Co
3
Fa
1
Fa
2
Go
1
Go
2
Go
3
Pi1
Pi2
Pi3
Pe
1
Pe
2
Pe
3
Po
1
Po
2
Po
3
Example Farms
CP ACRE
F3
6 wheat-SB farms11 corn-SB farms
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Food, Conservation and Energy Act of 2008
I. Commodity programs
II. Conservation III. TradeIV. Nutrition V. CreditVI. Rural developmentVII. Research & related
mattersVIII. Forestry IX. Energy
X. Horticulture and organic agriculture
XI. Livestock
XII. Crop Insurance and Disaster Assistance Programs
XIII. Commodity Futures
XIV. Miscellaneous
XV. Trade and tax provisions
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S.3240: Agriculture Reform, Food and Jobs Act of 2012
I. Commodity programs
II. Conservation III. TradeIV. Nutrition V. Farm Credit
ProgramsVI. Rural
development Programs
VII. Research, Extension, & related matters
VIII. Forestry IX. EnergyX. HorticultureXI. Crop InsuranceXII. Miscellaneous
Which title has the largest budget?
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CBO’s Ten-year Baseline, S.3240$995 billion, FY2013-2022
Crop insurance9.0%
Conservation6.6%
Trade0.3%
Horticulture0.1%
Energy0.0%
Nutrition77.6%
Commodities6.3%
Source: Monke, CRS
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CBO’s Ten-year Score of S.3240Net: $969 billion (23.6B less), FY2013-2022
Crop insurance9.8%
Conservation6.1%
Trade0.4%
Horticulture0.1%
Energy0.1%
Nutrition79.1%
Commodities4.5%
Source: Monke, CRS
![Page 17: The U.S. Farm Bill: More than just the farm Kent Olson Department of Applied Economics University of Minnesota Minnesota Economic Association October 26,](https://reader033.fdocuments.us/reader033/viewer/2022051401/56649cdd5503460f949a8647/html5/thumbnails/17.jpg)
CBO’s Score of S.3240$billion change, FY 2013-2022
Co
mm
od
itie
s
Co
ns
erv
ati
on
Nu
trit
ion
En
erg
y
Ho
rtic
ult
ure
Cro
p I
ns
ura
nc
e
-25
-20
-15
-10
-5
0
5
10
Ch
an
ge
($
bil
lio
n)
Source: Monke, CRS
![Page 18: The U.S. Farm Bill: More than just the farm Kent Olson Department of Applied Economics University of Minnesota Minnesota Economic Association October 26,](https://reader033.fdocuments.us/reader033/viewer/2022051401/56649cdd5503460f949a8647/html5/thumbnails/18.jpg)
No Farm Bill?
• Several programs ended on October 1– Funding for other programs will end soon
• Commodity programs stopped• Crop insurance subsidies cut• No disaster assistance• No MILC payments for small dairies• SNAP is funded for now• On January 1: USDA buys dairy products at
very high prices under 1949 law
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“The Farm Bill” is not the only policy to affect farms
• Futures trading rules - derivatives
• Rural policy• Highways• Monetary policy• International trade• Other country’s
policies
• Environment• Energy (incl. ethanol)
• Immigration• Science• Zoning• …
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References
Monke, J. 2012. Budget Issues shaping a 2012 farm bill. CRS, R42484.
Olson, K., and M. DalSanto. 2007. Alternative Farm Bills: Impacts on Minnesota Farms. Staff paper P07-5, St. Paul, MN: University of Minnesota, Department of Applied Economics.