Revenue I m plications Revenue I m plications of the New Farm - - PDF document

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Revenue I m plications Revenue I m plications of the New Farm - - PDF document

Oct 31, 2022 507 likes •642 views

Revenue I m plications Revenue I m plications of the New Farm Bill of the New Farm Bill Nick Paulson npaulson@uiuc.edu University of I llinois 2 0 0 7 I llinois Farm Econom ic Sum m it The Profitability of I llinois Agriculture: W here

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2 0 0 7 I llinois Farm Econom ic Sum m it

The Profitability of I llinois Agriculture: W here to from Here?

Revenue I m plications Revenue I m plications

  • f the New Farm Bill
  • f the New Farm Bill

Nick Paulson npaulson@uiuc.edu University of I llinois

2 2 0 0 7 I llinois Farm Econom ic Sum m it

Presentation Outline Progress on the new Farm Bill Commodity programs

Outline House proposal provisions Outline Senate Ag Committee proposal provisions

Estimated revenue implications (expected program payments) Estimates of potential risk-reduction Conclusions

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3 2 0 0 7 I llinois Farm Econom ic Sum m it

Farm Bill Update

House approved its version in July Senate Ag Committee approved its version in October Currently being debated on the Senate floor Possible amendment limitations in attempt to approve a bill this year House and Senate versions will need to be reconciled Veto threat if there is lack of reform

4 2 0 0 7 I llinois Farm Econom ic Sum m it

House Farm Bill Direct payment, price-based counter-cyclical payment (PCCP), and marketing loan programs unchanged Rebalances target prices and loan rates Optional revenue-based countercyclical program (RCCP) Payment limit modifications for commodity programs

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House RCCP Producers would have a one-time option to choose between PCCP and RCCP RCCP provides payments when a national revenue index falls below the guarantee National revenue index

NASS National Yield*max[SAP, Loan Rate]

Fixed revenue guarantee for each eligible commodity set by Congress

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House RCCP RCCP Payment Rate

(Revenue Guarantee – Actual Revenue)/Payment Yield

RCCP Payment

0.85*Payment Rate*CC Yield*Base Acres

Payments made to all producers if triggered, regardless of farm-level revenue Coverage is “scaled” to the producer according to their CC Yield

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House Farm Bill Provisions

$149.92 $231.87 $344.12 RCCP Target Revenue 36.1 34.1 114.4 Payment Yield $4.15* $6.10* $2.63 PCCP Target Price $2.94* $0.52 Wheat $5.00 $0.44 Soybeans $1.95 $0.28 Corn Loan Rate Direct Payment Rate *Denotes an increase from current level

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House Payment Limitations Adjusted Gross Income (AGI) cap of $1 million

If AGI > $500k, 2/3 of income must be from farming

Direct payment cap of $60k (increased from $40k) Retains CC payment cap of $65k Marketing loan gain cap eliminated (currently $75k)

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9 2 0 0 7 I llinois Farm Econom ic Sum m it

Senate Farm Bill Direct payment, counter-cyclical payment (PCCP), and market loan programs continued Rebalances target prices and loan rates Optional Average Crop Revenue (ACR) program (starting in 2010) Modified payment limitations for commodity programs Crop insurance reform

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Senate Farm Bill Provisions

$4.20* $6.00* $2.63 PCCP Target Price $2.94* $0.52 Wheat $5.00 $0.44 Soybeans $1.95 $0.28 Corn Loan Rate Direct Payment Rate

*Denotes an increase from current level

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11 2 0 0 7 I llinois Farm Econom ic Sum m it

Senate ACR

One-time choice of:

Current direct payment, PCCP, and marketing loan programs OR $15 flat direct payment, ACR, and recourse loans

ACR payments made when state-level revenue falls below the guarantee ACR revenue index (Actual Rev.)

NASS State Yield*FCIC Harvest Price

ACR revenue guarantee

0.90*State Trend Yield*3-yr Avg. FCIC Pre-planting Price Revenue guarantee moves with the market

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Senate ACR ACR Payments

0.85*(Rev. Target – Actual Rev.)*Yield Factor Yield Factor = APH Yield/State Trend Yield

Payments made to all producers if triggered, regardless of farm-level revenue Coverage is “scaled” to the producer according to their Yield Factor (APH yield)

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ACR Parameters – IL Corn

167 165 163 161 Trend Yield $710 $4.25 2010* $652 $3.95 2009* $560 $3.44 2008* $481 $2.99 2007 Revenue Guarantee Pre-planting Price Year

*Estimates based on current corn futures

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PCCP and RCCP Payments

PCCP and RCCP Payment Triggers - Corn Acres

$1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 $5.50 $6.00 $6.50 $7.00 25 50 75 100 125 150 175 200 225 250 275

National Yield (bu/acre) Season Average Price ($/bu)

RCCP PCCP

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15 2 0 0 7 I llinois Farm Econom ic Sum m it

ACR Payments

ACR Payment Triggers - Corn Acres

$1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 $5.50 $6.00 $6.50 $7.00 $7.50 $8.00 $8.50 $9.00 $9.50 $10.00 25 50 75 100 125 150 175 200 225 250 275

State-Level Yield (bu/acre) FCIC Harvest Price ($/bu)

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2008 Expected Payments

Figure 1: Expected Program Payments on Central Illinois Corn Acres

$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 Traditional PCCP House RCCP Senate ACR

Farm Bill Program Expected Payment ($/base acre)

Direct LDP and CC or ACR

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17 2 0 0 7 I llinois Farm Econom ic Sum m it

2008 Expected Payments

Figure 2: Expected Program Payments on Central Illinois Soybean Acres

$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 Traditional PCCP House RCCP Senate ACR

Farm Bill Program Expected Payment ($/base acre)

Direct LDP and CC or ACR

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2008 Expected Payments

Figure 3: Expected Program Payments on Central Illinois Wheat Acres

$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 Traditional PCCP House RCCP Senate ACR

Farm Bill Program Expected Payment ($/base acre)

Direct LDP and CC or ACR

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19 2 0 0 7 I llinois Farm Econom ic Sum m it

Risk-Reduction by Program

7% 0% 0% Wheat 63% <1% 1% Soybeans 78% <1% 2% Corn ACR RCCP PCCP

Probability of program payments coinciding with a farm-level loss

Farm-level yield highly correlated with State

20 2 0 0 7 I llinois Farm Econom ic Sum m it

Risk-Reduction by Program Probability of program payments coinciding with a farm-level loss

Farm-level yield not correlated with State 5% 0% 0% Wheat 50% <1% 1% Soybeans 56% <1% 2% Corn ACR RCCP PCCP

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21 2 0 0 7 I llinois Farm Econom ic Sum m it

Conclusions

Corn Acres

Expected total payment levels roughly equal across the three programs ACR payments are not guaranteed, lower direct payments

Soybean Acres

Higher expected payments for ACR, direct payments are about the same

Wheat Acres

Direct payments only given current price environment, lower under ACR

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Conclusions Both House CC plans estimated to result in small chance of payments

Expected prices well above fixed target prices

Senate’s ACR plan estimated to pay more

  • ften with larger payments per acre

Revenue target moves with the market Yield trends used in the revenue guarantee are well above those used in the House plan Effect on direct payments differs by commodity

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23 2 0 0 7 I llinois Farm Econom ic Sum m it

Conclusions Amount of risk reduction offered by each plan depends on how closely farm revenues track the guarantee

If farm-level yields are highly correlated with national- or state-level yields the revenue-based plans may provide more timely payments