Presentation on Federal Farm Policy and development of 2018 Farm Bill within the context of the current conditions in the agriculture sector.

1. Brad Jordahl Redlin
October 25, 2018
Context and Policies
Colloquium in Sustainable Agriculture

2. 1. Federal Farm Policy in Context
2. Production Policy
3. Conservation Policy
4. Risk Management Policy
Context and
Policies

3.  51 percent of total U.S. land is in agricultural use
(61 percent of lower 48 states).
 Urban land use is 2.7 percent.

4. ► Number of U.S. farms for 2017 is estimated at 2.05 million, down 12,000
farms from 2016.
► Total land in farms, 910 million acres, decreased 1 million from 2016.
► Average farm size for 2017 is 444 acres, up 2 acres from the previous year.

5.  Farm numbers (and losses) a matter of USDA classification.

6.  Crop prices had been strong in previous farm bill cycles...

7.  Crop prices had been strong in previous farm bill cycles...

8. TRADE WAR
U.S. has so far shipped just
201,700 metric tons of soybeans to
China this marketing year (18/19),
a 96 percent drop compared with
the same time last year (4,658,900
metric tons).
China soybean imports
Marketing Year 17/18: 27.7 Million metric tons
Marketing Year 16/17: 36.1 Million metric tons
Swanson, K., G. Schnitkey and J. Coppess. "Reviewing Prices and Market Facilitation
Payments." farmdoc daily (8):188, Department of Agricultural and Consumer Economics,
University of Illinois at Urbana-Champaign, October 11, 2018.
TARRIFS!
retaliatory TARRIFS! MFP!

9.  …and not just crops….

10.  Price and profitability.
 Every farm is different, but
USDA has survey data and
estimates to summarize costs
and returns.
Corn production costs and returns per planted acre, excluding Government payments,
Heartland, 2010-2016
Item 2010 2011 2012 2013 2014 2015 2016
dollars per planted acre
Gross value of production
Primary product: Corn grain 723.11 883.50 811.58 757.35 628.29 633.36 610.08
Secondary product: Corn silage 0.24 0.42 0.33 0.35 0.29 0.30 0.24
Total, gross value of production 723.35 883.92 811.91 757.70 628.58 633.66 610.32
Operating costs:
Seed 87.72 90.78 98.83 104.96 108.41 109.17 106.49
Fertilizer 2/ 118.09 155.18 164.77 161.58 156.78 144.54 122.22
Chemicals 26.95 26.95 28.31 29.40 29.94 28.66 29.60
Custom operations 3/ 15.25 15.53 15.84 16.47 16.93 17.66 17.96
Fuel, lube, and electricity 22.18 27.76 25.98 27.62 28.20 18.14 16.17
Repairs 21.77 22.45 23.12 23.34 23.79 23.75 23.79
Purchased irrigation water 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Interest on operating capital 0.29 0.17 0.24 0.16 0.12 0.29 0.73
Total, operating costs 292.25 338.82 357.09 363.53 364.17 342.21 316.96
Allocated overhead:
Hired labor 2.61 2.64 2.73 2.81 2.86 2.97 3.07
Opportunity cost of unpaid labor 20.21 20.42 21.15 21.76 22.17 22.97 23.80
Capital recovery of machinery and equipment 81.22 86.16 90.47 93.06 96.50 98.74 99.43
Opportunity cost of land 150.49 163.77 184.42 200.65 208.03 212.46 192.39
Taxes and insurance 7.77 8.18 8.26 8.42 8.58 10.10 10.04
General farm overhead 17.37 17.91 18.45 18.63 18.98 18.95 18.98
Total, allocated overhead 279.67 299.08 325.48 345.33 357.12 366.19 347.71
Total, costs listed 571.92 637.90 682.57 708.86 721.29 708.40 664.67
Value of production less total costs listed 151.43 246.02 129.34 48.84 -92.71 -74.74 -54.35
Value of production less operating costs 431.10 545.10 454.82 394.17 264.41 291.45 293.36
Supporting information:
Price (dollars per bushel at harvest) 4.33 5.70 6.82 4.59 3.51 3.64 3.28
2/ Cost of commercial fertilizers, soil conditioners, and manure.
3/ Cost of custom operations, technical services, and commercial drying.
Source: Compiled by ERS using Agricultural Resource Management Survey data and other sources.

11.  But those prices don’t have a profound effect on food prices

12.  Environmental impact from agriculture receives broad attention.
 Industry and consumers are engaging the issue.
Lake Erie algae issues
may strike Cleveland
New Jersey-Size 'Dead Zone' Is Largest
Ever in Gulf of Mexico

13.  Long history of legislative
engagement with agriculture.
 In general terms there have been
17 Farm Bills, beginning with the
Agricultural Adjustment Act of 1933.

14.  Farm Bill reauthorized every 5 years--or will revert to 1949 “Permanent Law.”

15.  Farm Bill reauthorized every 5 years--or will revert to 1949 “Permanent Law.”

16.  There are 3 means for delivering $ to agriculture via Farm Bill.
 Commodity Subsidies, Conservation Programs, Crop Insurance.

17. ►Nutrition programs
major aspect of USDA
operations.
►Farm Bill:
SNAP (food stamps).
►Non-Farm Bill:
National School Lunch Program;
Women, Infants and Children;
Child&Adult Care Food Program;
School Breakfast Program.
► Major Conflict in
2018 House Farm Bill
• work requirement
• training programs

18. 1. Federal Farm Policy in Context
2. Production Policy
3. Conservation Policy
4. Risk Management Policy
Context and
Policies

19. CCP CYs 2010-12
Wheat $4.17/bu
Corn $2.63/bu
Grain sorghum $2.63/bu
Barley $2.63/bu
Oats $1.79/bu
Upland cotton $0.7125/lb
Long-grain rice $10.50/cwt
Medium-grain
rice
$10.50/cwt
Peanuts $495/ton
Soybeans $6.00/bu
Other oilseeds $12.68/cwt
Loan Rate CYs 2010-12
Wheat $2.94/bu
Corn $1.95/bu
Grain sorghum $1.95/bu
Barley $1.95/bu
Oats $1.39/bu
Long-grain rice $6.50/cwt
Medium-grain
rice
$6.50/cwt
Soybeans $5.00/bu
Other oilseeds $10.09/cwt
Upland cotton $0.52/lb
ELS cotton $0.7977/lb
Peanuts $355/ton
 Commodity supports were generally consistent in recent Farm Bills (‘96, ’02, ’08).
 Paid on floor & target prices… and at a standard rate de-coupled from production.
Direct Payment
rate
Wheat $0.52/bu
Corn $0.28/bu
Grain sorghum $0.35/bu
Barley $0.24/bu
Oats $0.024/bu
Upland cotton $0.0667/lb
Long-grain rice $2.35/cwt
Soybeans $0.44/bu

20. Price Loss
Coverage
(PLC)
• 85% base
• SCO
Wheat
$5.50 per
bushel
Corn
$3.70 per
bushel
Grain sorghum
$3.95 per
bushel
Barley
$4.95 per
bushel
Oats
$2.40 per
bushel
Long-grain rice
$14.00 per
hundredweight
Medium-grain
rice
$14.00 per
hundredweight
Soybeans
$8.40 per
bushel
Other oilseeds
$20.15 per
hundredweight
Loan Rate
Wheat $2.94/bu
Corn $1.95/bu
Grain
sorghum
$1.95/bu
Barley $1.95/bu
Oats $1.39/bu
Long-grain
rice
$6.50/cwt
Medium-
grain rice
$6.50/cwt
Soybeans $5.00/bu
Other
oilseeds
$10.09/cwt
Upland
cotton
$0.42/lb to
$0.52/lb
ELS cotton $0.7977/lb
Peanuts $355/ton
 2014 law maintained MAL; PLC alternative to CCP; and ARC “shallow loss.”
(choose one time between PLC and ARC)
Agricultural
Risk Coverage
(ARC)
Pymts no greater
than 10 percent of
benchmark revenue
ARC-county
(85% base)
avg county yield
times national farm
price drops below
86% of county
benchmark revenue
(5-year Olympic avg
county yield times >
5-year Olympic avg
national or reference
price each year)
ARC-individual
(65% base)
difference between 86%
individual farm
guarantee (the 5-year
Olympic avg individual
yield times > 5-year
Olympic avg of national
or reference price each
year) and actual
individual farm revenue
summed across all
commodities (sum all
covered commodities
avg revenue weighted
by plantings)

21. Price Loss
Coverage
(PLC)
• 85% base
• SCO
Wheat
$5.50 per
bushel
Corn
$3.70 per
bushel
Grain sorghum
$3.95 per
bushel
Barley
$4.95 per
bushel
Oats
$2.40 per
bushel
Long-grain rice
$14.00 per
hundredweight
Medium-grain
rice
$14.00 per
hundredweight
Soybeans
$8.40 per
bushel
Other oilseeds
$20.15 per
hundredweight
Loan Rate
Wheat $2.94/bu
Corn $1.95/bu
Grain
sorghum
$1.95/bu
Barley $1.95/bu
Oats $1.39/bu
Long-grain
rice
$6.50/cwt
Medium-
grain rice
$6.50/cwt
Soybeans $5.00/bu
Other
oilseeds
$10.09/cwt
Upland
cotton
$0.42/lb to
$0.52/lb
ELS cotton $0.7977/lb
Peanuts $355/ton
 2014 law maintained MAL; PLC alternative to CCP; and ARC “shallow loss.”
(choose one time between PLC and ARC)
Agricultural
Risk Coverage
(ARC)
Pymts no greater
than 10 percent of
benchmark revenue
ARC-county
(85% base)
avg county yield
times national farm
price drops below
86% of county
benchmark revenue
(5-year Olympic avg
county yield times >
5-year Olympic avg
national or reference
price each year)
ARC-individual
(65% base)
difference between 86%
individual farm
guarantee (the 5-year
Olympic avg individual
yield times > 5-year
Olympic avg of national
or reference price each
year) and actual
individual farm revenue
summed across all
commodities (sum all
covered commodities
avg revenue weighted
by plantings)

22. Permanent
Law
“floor price”:
Wheat $13.20
Corn $6.50
Cotton $1.30
Milk $39.08
Soybeans…soybeans…?

23.  ARC explained
…maybe.
$4.50 x 180 =
$810 x 0.86 =
$696.60/acre $3.20 x 180 =
$576/acre
$696.60 - $576 =
$120.60 x 50 acres =
$6,030 x 0.85 =
$5,125.50 or $102.51/acre
($810 x 0.10 = $81/acre)
$81 x 50 =
$4,050 ARC payment

24.  Commodity program payments made on “base acres.”
 historical planted acreage registered for each farm.
 may plant any crop*; payments based on “base” and historical yield.
Soybeans
35 acres
Corn
50 acres
Wheat
15 acres
 2014 Farm Act permitted one-time option to update base (no increase in acres)
and yield (2009 - 2012)
 base stays with land.
XYZ Farm
100 acres

25. Price Loss Coverage and Agriculture Risk Coverage
- planting provisions -
 Previous policy (multiple farm bills) lost acre-to-acre DP
and penalized market value of vegetables.
 PLC and ARC enrollment permits fruit, vegetables, and
wild rice on up to 15% of registered farm base acres.
non-base acres base acres
no penalty
<15% base acres:
no penalty
>15% base acres:
payment acres
reduction acre-for-
acre exceding15%
(NOTE: 35% individual ARC)

26. 1. Federal Farm Policy in Context
2. Production Policy
3. Conservation Policy
4. Risk Management Policy
Context and
Policies

27.  Conservation Programs expanded
with ‘85 Farm Bill and generally grew
consistently in subsequent Farm Bills
(‘90, ‘96, ’02, ’08).
 Conservation Title contains a suite
of programs.
 Programs meet different goals and
utilize different methods.
Some contraction in programs with
2014 Farm Act.
Wetlands Reserve Program, Farmland Protection Program,
and Grassland Reserve Program (easement) consolidated into:
Agricultural Conservation Easement
Program (ACEP)
Agricultural Water Enhancement Program, Chesapeake Bay
Watershed Program, Cooperative Conservation Partnership
Initiative, Great Lakes Basin Program are consolidated into:
Regional Conservation Partnership
Program (RCPP)
Wildlife Habitat Incentive Program is merged into:
Environmental Quality Incentives
Program (5% dedicated wildlife)
Grassland Reserve Program (rental) is now through:
Conservation Reserve Program
(grassland up to 2 million acres)

28.  ‘Working lands’
programs are dominant.

29. Conservation Compliance
Highly Erodible Land (HEL) Compliance, Sodbuster, Wetland Conservation (Swampbuster)
 Public provides financial support via USDA payments.
 Recipients protect soil and wetlands for the public.
 Penalties are reduction or loss of farm program
payments for draining existing wetlands or not
maintaining soil protections.
Ducks Unlimited photo
NRCS photoNRCS photo

30.  Farm Bills set mandatory
spending levels; appropriators
nonetheless do otherwise.
 Conservation CHIMPS cut
$1.6 billion since 2014 Farm Bill.
 House 2018 bill further
consolidates Conservation
(eliminates CSP)

31. 1. Federal Farm Policy in Context
2. Production Policy
3. Conservation Policy
4. Risk Management Policy
Context and
Policies

32.  Federal Crop Insurance is subsidized for producers and insurance
companies.
 National average is 62% of premium is paid by subsidy, often even
higher.
 Crop Insurance exempted from compliance in 1996 Farm Bill.
Reinstated in 2014.
From written Testimony of William Cole, Chairman, Crop Insurance Professionals Association- Committee on
Agriculture, Nutrition, and Forestry, July 25, 2017.

33.  Subsidized risk reduction, without compliance checks and balances,
can incent unintended consequences:
 Producers “leave” the farm
program to avoid compliance.
 Producers may take risks
with land or practices.

34.  Participation in Crop
Insurance is high across major
commodities.
 Premium subsidies, Revenue
policies have been growing rapidly.

35.  Fundamental crop insurance formula:
((Yield * Coverage) * price) * acres = Insured Revenue
Yield – Actual Production History (APH)
minimum 4 yrs, maximum 10 yrs
Coverage – percentage of yield/APH insured
like a deductible, select from sequence 50% - 85%
Price – generally, higher of spring/harvest price
average futures prices Feb or Oct
Acres – acres planted to insured crop
optional “units,” e.g. all acres of one crop in county
((185 * 80%) * $4.62) * 500 = $341,880 insured revenue
(185 * $3.49) * 500 = $322,825 actual revenue
$19,055 indemnity

38.  Crop Insurance dominant in Farm Bill policy and budget.
 Extended low-price cycle is challenge to revenue insurance.
 Climate change is challenge to APH (provisions enacted to minimize ‘bad’ years).
2018

39.  Crop Insurance is lynch pin of Farm Bill policy for farmers; most cited priority in 2018 Farm Bill.
 Presently in dispute: Title I distribution of $; House SNAP; House Title II consolidation.
 Wither 2018 Farm Bill? 1) Lame Duck passage? 2) Extension? 3) New leadership/bill? 4) Epic fail?
 What are U.S. ag’s needs? 1) Resilient Systems, 2) Consumers/Buyers.
Context and
Policies 2018

40. bjredlin@gmail.com
Brad Jordahl Redlin
bjredlin@gmail.com
651.270.0564
www.sustainableagriculture.netwww.ers.usda.gov/ www.fsa.usda.gov/FSA/
Context and
Policies