FARM POLICY IN THE DOWNTURN AND BEYOND Jonathan Coppess University of Illinois jwcoppes@illinois.edu
Part 1. SUMMARY OF THE DOWNTURN
INCREASED ACRES 120,000,000 Acres Planted (NASS) 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Corn Soybeans Wheat Cotton
Bushels 480-lb Bales Cotton INCREASED PRODUCTION 16,000,000,000 Total Production (NASS) 25,000,000 14,000,000,000 12,000,000,000 20,000,000 10,000,000,000 8,000,000,000 6,000,000,000 15,000,000 10,000,000 4,000,000,000 2,000,000,000 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Corn Soybeans Wheat Cotton 5,000,000 0
Bushels/Acre Pounds Cotton/Acre INCREASED YIELDS 200 180 160 National Average Yields (NASS) 1000 900 800 140 120 100 80 60 40 20 700 600 500 400 300 200 100 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Corn Soybeans Wheat Cotton 0
$/BUSHEL $/POUND COTTON DECREASED PRICES $16.0000 $14.0000 $12.0000 $10.0000 $8.0000 $6.0000 $4.0000 $2.0000 $0.0000 Marketing Year Average Prices (NASS; CBO) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p 2017p 2018p Corn Soybeans Wheat Cotton $1.0000 $0.9000 $0.8000 $0.7000 $0.6000 $0.5000 $0.4000 $0.3000 $0.2000 $0.1000 $0.0000
DECREASED REVENUES $1,000.00 National Average Revenue (Estimated-NASS and CBO) $900.00 $800.00 $700.00 $600.00 $500.00 $400.00 $300.00 $200.00 $100.00 $0.00 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f 2018f Corn Soybeans Wheat Cotton NOTE: Revenues estimated using national average yields and MYA prices
CORN SUPPLY & DISAPPEARANCE 18,000 Corn Supply and Use-ERS (Millions of bushels) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 Total Supply Food-Alcohol-Ind. Seed Feed Exports
Part 2. FARM POLICY S ROLE.
TRADITIONAL FARM COALITION
1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 $/BUSHEL $/POUND COTTON PRICES & FARM POLICY HISTORY. $9.00 Decoupled Era $1.0000 $8.00 $7.00 Target Price Era $0.9000 $0.8000 $6.00 $0.7000 $5.00 $4.00 Parity Era $0.6000 $0.5000 $0.4000 $3.00 $2.00 $1.00 1933 AAA 1973 A&CPA 1996 FAIR Act $0.3000 $0.2000 $0.1000 $0.00 $0.0000 Corn Wheat Cotton USDA-NASS; average prices received by farmers in the marketing year
2014 FARM POLICY DISPUTE: PLC 2014 Farm Bill eliminated direct payments; Opened regional dispute over farm programs; $4.40 $4.20 $4.00 $3.80 $3.60 $3.40 $3.20 Price-based vs. Revenue-based. $3.00 2013 2014 2015 216 2017 2018 Deficiency Payment Market Price Reference Price
2014 FARM POLICY DISPUTE: ARC & REVENUE 200 180 160 140 120 100 80 60 40 20 0 Corn Example-Revenue Policy 2009 2010 2011 2012 2013 2014 2015 2016f 2017f 2018f 2019f Co. Yield Benchmark Yld MYA Prices Ref. Price Benchmark MYA Note: forecasted yields are estimated trend; prices CBO 2016 baseline $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00
FARM PROGRAM DECISION Locked through 2014 Farm Bill expiration in 2018; unless Congress Acts. Vast majority of base acres are in corn and soybeans; revenue program. Farmer elections represent the regional dispute over farm policy. SOYBEANS CORN SMALL CHICKPEAS OATS LARGE CHICKPEAS WHEAT RAPESEED DRY PEAS SUNFLOWERS LENTILS MUSTARD FLAXSEED TEMPERATE JAPONICA RICE CRAMBE SAFFLOWER GRAIN SORGHUM BARLEY SESAME MEDIUM GRAIN RICE (SOUTHERN) CANOLA PEANUTS LONG GRAIN RICE Figure 1. Percent of Base Acres Enrolled in ARC and PLC. ARC-CO ARC-IC PLC Source: Farm Service Agency 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percent of Base Acres FarmdocDaily, June 16, 2015
Revenue: ARC-CO $900.00 $800.00 $700.00 $600.00 $500.00 $400.00 $300.00 $200.00 $100.00 $0.00 Corn Example 2013 2014 2015 2016f 2017f 2018f 2019f Guarantee Actual Rev. Benchmark Rev. $900.00 $800.00 $700.00 $600.00 $500.00 $400.00 $300.00 $200.00 $100.00 $0.00 Note: forecasted yields are estimated trend; prices CBO 2016 baseline
PRICE POLICY: PLC $16.0000 $14.0000 $12.0000 $10.0000 $8.0000 $6.0000 $4.0000 $2.0000 $0.0000 Marketing Year Average Prices (NASS; CBO) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p 2017p 2018p Corn Soybeans Wheat Corn Fixed (eff.) Soybeans Fixed (eff.) Wheat Fixed (eff.) Cotton Cotton Fixed (eff.) $1.0000 $0.9000 $0.8000 $0.7000 $0.6000 $0.5000 $0.4000 $0.3000 $0.2000 $0.1000 $0.0000
OVERVIEW OF CROP INSURANCE $20,000 $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 Crop Insurance ($Millions) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Premium Subsidy Total Premium Indemnity Farmer Paid
OVERVIEW OF CROP INSURANCE Crop Insurance $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 2001 2004 2007 2010 2013 Total Liability Farmer Benefit Note: Farmer benefit calculated as total indemnities minus farmer paid premium (RMA).
WATER QUALITY CONCERNS. Des Moines Waterworks Lawsuit Toledo & Western Lake Erie Chesapeake Bay TMDL Others (non-ag): Flint, etc. Gulf of Mexico Hypoxia www.policymatters.illinois.edu
CONSERVATION PROGRAMS. BASELINE. $7,000 CBO (Millions) $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 2015A 2016 2017 2018 2109 2020 2021 2022 2023 2024 2025 2026 CRP CSP EQIP ACEP RCPP
Part 3. LOOKING AHEAD: 2018 FARM BILL
LOOKING AT THE 2016 PRESIDENTIAL ELECTION
LEGISLATING A FARM BILL. The Traditional Farm Coalition & the 2016 Election results 2012 Presidential Election
2018 FARM BILL: SPENDING & PRIORITIES With budget pressure: partisan and difficult; competition for resources A question of priorities within the farm policy budget baseline. $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 CBO March 2016 Baseline (Billions) Baseline for Next Farm Bill? 2015a 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 CCC Commodities Crop Insurance Conservation
MANDATORY SPENDING IN THE FARM BILL. CBO March 2016 Baseline (Billions) CBO March 2016 Baseline (Millions) $83.00 50.00 $73.00 $63.00 $53.00 45.00 40.00 35.00 30.00 $43.00 25.00 $33.00 $23.00 $13.00 20.00 15.00 10.00 5.00 $3.00 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 0.00 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Commodities Crop Insurance Conservation SNAP ARC/PLC Participants SNAP Participants
ELECTION TAKEAWAYS: HISTORICAL PERSPECTIVE First unified Republican government to write farm bill since 1954. 1981: President Reagan & budget as weapon; Democratic House 1995-1996: Republican control of Congress; budget reconciliation; Democratic President. 2011-2014: Republican House uses debt ceiling and budget to force spending cuts; Democratic Senate and President
ELECTION TAKEAWAYS: UPSIDE POTENTIAL Rural America & voters in the spotlight. Infrastructure spending: locks & dams; jobs; etc. Reduced regulatory pressures (WOTUS). Tax reforms. 2016 Presidential Election results cartogram (rescaled based on population) Source: http://wwwpersonal.umich.edu/~mejn/election/2016/
ELECTION TAKEAWAYS: DOWNSIDE RISKS Misreading the rural voter. Impact of shift in trade policies. Anti-EPA & regulations impact on RFS Push to cut Federal spending impact on farm policy (farm programs to crop insurance to conservation)
THANK YOU!. Jonathan Coppess jwcoppes@illinois.edu