ECON 337: Agricultural Marketing

1. ECON 337: Agricultural Marketing Lee Schulz Assistant Professor lschulz@iastate.edu 515-294-3356 Chad Hart Associate Professor chart@iastate.edu 515-294-9911

2. Old vs. New Farm Bill Direct Payments (DP) Countercyclical Payments (CCP) Marketing Loans (LDP) Revenue Countercyclical Payments (ACRE) • Countercyclical Payments (PLC) • Marketing Loans (LDP) • Revenue Countercyclical Payments (ARC) New programs, but they have strong similarities to previous programs

3. What Stayed the Same? Loan Rates Set by law Corn $1.95 Wheat $2.94 Soybean $5.00 Sorghum $1.95 Barley $1.95 Oats $1.39

4. Two Waves First wave: Choice on base acreage and yield updating Probably occurs late summer timeframe Second wave: Choice on farm bill programs Probably late fall/early winter Harvest the crop and farm bill at the same time

5. Base Acres Keep current base acres or do a one-time “reallocation” of base acres Reallocation allowed to covered commodities planted between 2009 and 2012 Reallocation in proportion to the ratio of 4-yr average plantings/prevented plantings Total number of base acres limited to total of existing base acres

6. Payment Yields Keep current CCP payment yield or do a one-time “update” of payment yield on a commodity-by-commodity basis Update: 90% of 2008-2012 yield per planted acre on the farm If the farm yield is below 75% of the 2008-2012 average county yield, then the farm yield is replaced by 75% of the 2008-2012 average county yield County yield: planted or harvested?

7. Payment Acres For PLC and ARC at the county level, 85% of base acres For ARC at the individual level, 65% of base acres

8. Producer Choice Have one-time choice between: PLC or ARC (can pick by commodity) If ARC is chosen, pick between county and individual coverage If individual coverage is chosen, must be taken for all covered commodities on the farm 2014-2018 crop years

9. Reference Prices Reference Prices Corn $3.70 Wheat $5.50 Soybean $8.40 Sorghum $3.95 Barley $4.95 Oats $2.40 • Old Target Prices • Corn $2.63 • Wheat $4.17 • Soybean $6.00 • Sorghum $2.63 • Barley $2.63 • Oats $1.79

10. PLC instead of CCP Price-based support program Reference prices establish targets Works like CCP Payment rate = Max(0, Reference price – Max(MYA price, Loan rate)) Payment = Payment rate * Payment yield * Payment acres

11. PLC vs. CCP and DP

12. ARC instead of ACRE Revenue-based support program Revenues based on 5-year Olympic average yields and prices Yields and prices have cups (County T-yields and reference prices) Triggers at county or individual farm level, instead of state level

13. ARC Payment Rate Payment rate = Max(0, Min(10% of Benchmark revenue, Actual crop revenue – ARC guarantee)) So the basic payment structure is the same as it was under ACRE

14. Revenue Programs • Think of ARC-County as crop-by-crop • Think of ARC-Individual as whole farm

15. Conservation • Conservation Reserve Program • 27.5 million acres in 2014 • 26 million acres in 2015 • 25 million acres in 2016 • 24 million acres in 2017 and 2018 • Grassland enrollment capped at 2 million acres

16. Supplemental Coverage Option (SCO) • An additional policy to cover “shallow losses” • Shallow loss = part of the deductible on the producer’s underlying crop insurance policy • SCO has a county-level payment trigger • Indemnities are paid when the county experiences losses greater than 14% • Premium subsidy: 65% • Starts in 2015 • Can’t have ARC and SCO together

17. Class web site: http://www.econ.iastate.edu/~chart/Classes/econ337/Spring2014/ Have a great weekend. See you in lab on Tuesday.